Credit deflation and the reflation cycle to come.

[DurhamBorn]

1 minute ago, Game_of_Homes said:

@DurhamBorn, how likely do you think the price of silver will be manipulated in the same way the gold price has?

I dont think it has been manipulated,not to anything that matters.There is some short term movement on the COMEX with short contracts etc,but nothing that changes the longer term direction.To be honest commercials are long on gold and platinum now and slightly short silver.Its the dumb money (retail) that is short (9% bulls,the last twice 9% bulls on retail has marked inflection points).

I think the 22 level in the GDX looks like support,though i would prefer to of seen it drop to the 20.83 area as that would kill sentiment stone dead.SIL hitting the Feb low would also be perfect around the same time 28.21.At these points we like to buy the miners in two areas,the ones that are showing relative strength over the last few months,like Yamana and the ones that have shown relative weakness,the likes of Harmony and Sibanye.We find both tend to outperform when the complex turns.

[PatronizingGit]

1 hour ago, DurhamBorn said:

Labour are right on this,but hopefully it wont be them delivering it due to their wanting to bring back into public ownership.That would be a disaster.

Our infrastructure would probably be fine for a nation of not much more than 55 million, as it was when labour found it in 1997. 

I don't really see the point of tackling any infrastructure issues until immigration is largely cut off. Its going to be a constant & impossible battle to just keep up. We will face ever greater calls to loosen the borders further in coming years, & labour, perhaps even more than the tories, will not have the backbone to just say no to immigrants. 

[sancho panza]

12 hours ago, Majorpain said:

 

You can spot in the chart where things changed at the recent high, I think this cycle should have ended in 2016, instead more money was pumped into the system to keep things afloat.  As Sancho has mentioned, that makes for twice the pain as even things that should have been sorted soon after 2008 are still hanging around. 

This cycle hasnt got the nickname of the "everything bubble" for nothing...

Dow is a hard chart to try and read (due to price weighted nature of it) but the exponential run ups are a universal sign normally.

I agree with you MP that the top is in on the Dow.

 

2 hours ago, Democorruptcy said:

The new MPC member appointed last month is a productivity expert. He replaces Ian McCafferty who was the most hawkish member. It's funny that, how the most hawkish member is always the one that's due to leave next.

Another fresh from his academic Ivory Tower.

2 hours ago, darkmarket said:

https://www.theguardian.com/commentisfree/2018/jun/20/britain-investment-revolution-labour-party

John McDonnell delivers the reflation policy:

..."This country suffers the lowest rate of investment in the G7. Our infrastructure – the essential networks of transport, utilities and telecommunications – is creaking under the strain, and suffering from decades of privatised mismanagement. On technology, we are falling even further behind... Real wages remain lower than they were eight years ago. Yet amid the public squalor and worsening conditions for the many, there are huge new investments in luxury flats and, at least in parts of London, extraordinary private wealth."

..."The team’s final report is published today, and proposes fundamental shifts in how our financial system is organised. Reform of the Bank of England’s mandate is at its centre. It should retain operational independence, but – more than two decades after this was granted it is time to reassess its guiding principles. – Turner’s team have recommended that alongside the Bank’s existing inflation target it should set a 3% target for productivity growth."

No mention that real wages have been depressed due to immigration of unskilled labour.

Possibly one of the few people who could make me grateful to have Osbourne and Darling as Chancellor.

But I guess this is what happens when you have a political class with little life/work experience outside of politics.

[sancho panza]

58 minutes ago, sancho panza said:

Pidgeley is a bright guy,as are their Directors who've sold over £100mn of stock in the last 12 months.

Pidgeley has sold £60mn of his own stock over last 12 months

https://uk.webfg.com/equity/Berkeley_Group_Holdings_The/director-deals/largest-deals

 

10 hours ago, Bricks & Mortar said:

I bet they do.  I worked for one in 2008.  With hindsight, and knowledge of how they were arranging their affairs, I'd say they were either remarkably lucky, or had some foresight of the thing "no-one saw coming."  Considering what was at stake for them, and the extent of their preparations... I don't think it was just luck. 
I'd say they got some

first class macro advice from somewhere.

 

[sancho panza]

https://wolfstreet.com/2018/06/19/the-smart-money-gets-ready-for-the-next-credit-event/

'

The Smart Money Gets Ready for the Next Credit Event

by Wolf Richter • Jun 19, 2018 • 24 Comments

“It feels like we’re about 12 months away, but we could get into extended innings.”

As corporate indebtedness in the US has reached precarious heights, and as risks are piling up, in an environment of rising interest rates and a hawkish Fed, the smart money is getting ready.

The smart money is preparing for the moment when the air hisses out of the exuberant junk-bond market, when liquidity dries up for over-indebted companies, and when their bonds collapse. The smart money is preparing for the arrival of “distressed debt” – it’s preparing now because these preparations include raising billions of dollars for their funds, and that takes some time.

“Distressed debt” is defined as junk-rated debt that sports yields that are at least 10 percentage points above equivalent US Treasury yields.

Distressed-debt investors can make a killing by buying bonds for cents on the dollar during times of economic stress, of companies that they believe will make it through the cycle without defaulting. In this scenario, a distressed bond might sell for 40 cents on the dollar, and two years later, the company is still intact and the credit squeeze is resolved, and now the bond is worth face value. For those two years, the bond paid a huge yield to investors that bought at 40 cents on the dollar – and the profit might be 200% in capital gains and interest.

The thing is: The junk-bond market has been booming. There’s no credit squeeze yet. And the riskiest end is flush as the “dumb money” is still chasing yield. And for the smart money, there’s not much to pick at the moment; but down the road, the future looks bright.

S&P Global tracks distressed debt in its US High Yield Corporate Distressed Bond Index. The index peaked in early July 2014, on the eve of the oil bust. Over the next 18 months, it plunged 56% as the oil bust was wreaking havoc on oil-and-gas bonds. But on February 11, 2016, the index bottomed out. New money began flowing into the oil-and-gas sector. Banks started lending again. The surviving bonds soared. And the index skyrocketed 113% in 28 months:

The index’s gain from February 11, 2016 through June 19, 2018, of 113% was more than double the gain of the S&P 500 stock index — a phenomenal 46% — over the same period.

The smart money that got the timing right made huge gains. But the hypothetical buy-and-holder, whose portfolio mirrors the bonds in the index, would have seen their investments plunge and then recover mostly, but they would still be down 6%.

And now investment funds – they’re all aware of the dynamics in the chart above – are setting up for the next big selloff in the junk-bond market.

In total, seven distressed-debt funds have raised about $15.4 billion so far in 2018, according to the Financial Times. GSO Capital Solutions Fund III, which closed in April, raised $7.4 billion, the fourth-biggest distressed debt fundraising ever. The FT:

Jason Mudrick, founder of $1.9-billion Mudrick Capital, is marketing a second distressed investment fund, according to people with knowledge of the matter. The new fund will lock up investors’ money for five years and only charge fees once the capital commitment is invested, according to the people. The fundraising is set to close on December 1.

“This economy is roaring right now,” said Mr Mudrick, who declined to comment directly on the fundraising, citing US regulation. “It’s rocking and rolling. But that’s just not sustainable . . . My job is not to predict exactly when [the turn in the cycle] happens but to have the platform ready when it does.”

Mr. Mudrick believes it is a backdrop that will create ripe conditions for distressed debt investors when economic conditions do worsen. The New York-based fund generated returns of almost 40% in 2016 wagering that energy bonds hit by a declining oil price would recover, according to a hedge fund performance document produced by HSBC and seen by the Financial Times.

Among the other funds is Strategic Value Partners, which raised nearly $3 billion.

Another distressed-debt fund, DSC Meridian Capital, was launched at the start of this month. “I think we’ll be doing a lot of distressed stuff when there’s distressed stuff to do,” the founder, Sheru Chowdhry, formerly co-portfolio manager of the Paulson Credit Opportunities fund, told the FT. “It feels like we’re about 12 months away, but we could get into extended innings.”

Investing successfully in distressed debt is a special expertise. When the bottom falls out, distressed debt becomes an illiquid market. When forced selling sets in as bond mutual funds and others that have to meet redemptions by nervous retail investors, while buyers simply evaporate, incredible deals can be made. But the risk of total wipeout is large. Many distressed bonds get crushed in bankruptcy. This is a fate to be avoided.

To succeed, investors – usually teams – have to do some heavy manual lifting. They must not only do a solid credit analysis of the company and have a grip on the fine points of the industry, but they must also be able to understand the nuances of debt covenants, the details of the collateral, and a million other things. And they must have a deep understanding of global market trends and industry cycles. This is the smart money, and it’s setting up for the next credit event.'

[leonardratso]

when you say intangibles do you mean the likes of goodwill on the balance sheets? like carillions millions of goodwill, as soon as i see that on a balance sheet i always remember to discount it off all the final figures cos its just a made up load of shit to make it look better (ie solvent).

[DurhamBorn]

25 minutes ago, leonardratso said:

when you say intangibles do you mean the likes of goodwill on the balance sheets? like carillions millions of goodwill, as soon as i see that on a balance sheet i always remember to discount it off all the final figures cos its just a made up load of shit to make it look better (ie solvent).

He means brains over capital investment i think.He doesnt seem to understand thats due to importing so much.The factories are there,they are in China.I bring it in from there rather than work in one down the road like i used to.Once the £ is toast though thats not happening,like now,margins are being crushed.The underlying backbone of our economy can not provide the goods and services we consume.To do so means massive investment.It will happen everywhere.China will have to rush out the One belt one Road,the west produce more again.If he is there in 7 years he will be seeing rates head towards 10%.

[leonardratso]

1 minute ago, DurhamBorn said:

He means brains over capital investment i think.He doesnt seem to understand thats due to importing so much.The factories are there,they are in China.I bring it in from there rather than work in one down the road like i used to.Once the £ is toast though thats not happening,like now,margins are being crushed.The underlying backbone of our economy can not provide the goods and services we consume.To do so means massive investment.It will happen everywhere.China will have to rish out the One belt one Road,the west produce more again.If he is there in 7 years he will be seeing rates head towards 10%.

aha, nice. Thanks.

[Game_of_Homes]

@DurhamBorn What do you see happening in relation to the welfare state? My opinion is that you can't have both a generous welfare state plus open borders and that is what we seem to have at the moment. Housing benefit/LHA alone is something like £20-£30 billion per year as it is. What do you see happening going forward? How do you think the Government will deal with this and the need to properly reduce it (even if that option will be massively unpopular)? 

[DurhamBorn]

1 minute ago, Game_of_Homes said:

@DurhamBorn What do you see happening in relation to the welfare state? My opinion is that you can't have both a generous welfare state plus open borders and that is what we seem to have at the moment. Housing benefit/LHA alone is something like £20-£30 billion per year as it is. What do you see happening going forward? How do you think the Government will deal with this and the need to properly reduce it (even if that option will be massively unpopular)? 

Its tricky as thats political,but i expect we will see benefits go up slower than inflation.The Tories had a mandate to reform,but did very little.HB will fall because rents will fall.The main problems in the UK are tax credits and disability benefits being too high.(not ESA,but PIP).Tax credits now have a two child limit.The only real changes they could do now are higher hours rules and freezes.I dont see much real welfare reform ahead.May is terrible and Labour,well enough said.

[sancho panza]

 

  Apologies for the formatting.

Arca constituents market cap to revenue.Final column.

Obviously,ignore the royalty co's

 

  Zijin Mining Group    103.06    143.14          0.719994411
    Barrick Gold    14.97    10.16                      1.473425197
    Newmont Mining    20.5    9.17                 2.235550709
    Zhaojin Mining Industry    19.94    8.14    2.44963145
    Newcrest Mining    17.69    4.56                3.879385965
    AngloGold Ashanti ADR    3.35    4.36       0.768348624
    Goldcorp    12.18    4.27                              2.852459016
    Kinross Gold    4.68    4.2                            1.114285714
    Sibanye Gold ADR    1.48    3.42                  0.432748538
    Agnico Eagle Mines    10.6    2.82              3.758865248
    Gold Fields ADR    2.95    2.76                    1.06884058
    Yamana Gold    2.83    2.25                         1.257777778
    Centerra Gold    2.05    1.89                         1.084656085
    Buenaventura Mining ADR    4.46    1.59    2.805031447
    Evolution Mining    5.92    1.55                     3.819354839
    Randgold Resources ADR    7.07    1.55    4.561290323
    Kirkland Lake Gold    3.71    1.47                2.523809524
    Coeur Mining    1.48    1.43                          1.034965035
    Harmony Gold Mining    0.763    1.43        0.533566434
    IAMGold    2.74    1.41                                 1.943262411
    Endeavour Mining    2.57    1.38                1.862318841
    OceanaGold    2.18    1.21                          1.801652893
    Detour Gold    1.85    1.2                              1.541666667
    Wheaton Precious Metals    9.84    1.04    9.461538462
    Pan American Silver    2.71    1.02                2.656862745
    B2Gold    2.51    0.982                                  2.556008147
    New Gold    1.21    0.922                                1.312364425
    Northern Star Resources    3.85    0.903    4.263565891
    Tahoe Resources    1.54    0.873                 1.764032073
    Franco-Nevada    12.88    0.848                  15.18867925
    Hecla Mining    1.54    0.717                        2.147838215
    Alamos Gold    2.25    0.715                         3.146853147
    St Barbara    2.53    0.655                             3.86259542
    Centamin    1.37    0.638                              2.147335423
    Regis Resources    2.05    0.589                 3.480475382
    Resolute Mining    0.956    0.575                1.662608696
    Royal Gold    6.04    0.558                           10.82437276
    SSR Mining    1.26    0.546                            2.307692308
    Torex Gold    1.05    0.525                              2
    Eldorado Gold    0.914    0.523                      1.747609943
    Saracen Mineral Holdings    1.82    0.482    3.77593361
    Fortuna Silver    1.19    0.446                         2.668161435
    SEMAFO Inc    1.23    0.423                          2.907801418
    Guyana Goldfields    0.863    0.395               2.184810127
    First Majestic Silver    1.07    0.31                 3.451612903
    Pretium Resources    1.3    0.267                  4.868913858
    Osisko Gold Ro    1.48    0.256                       5.78125
    McEwen Mining Inc.    0.721    0.109           6.614678899
    Sandstorm Gold Ltd N    0.825    0.087        9.482758621

 

[DurhamBorn]

@sancho panza excellent resource and well worth having on the thread.The SA miners stand out of course if sentiment changes or gold runs they should explode.Kinross also really stands out for me and Yamana.Their prices are based on past mistakes mostly and debt slightly too high.

[TheCountOfNowhere]

Worth adding this link here

 

https://www.telegraph.co.uk/business/2018/06/20/uk-housing-market-loses-1bn-value/

 

"For the first time since 2011 the total value of the UK’s housing market dropped. In the year to December 2017 the market lost £1.2bn in value, falling to a total of £259bn."

[Yellow_Reduced_Sticker]

The good times are over for UK housebuilders!

https://moneyweek.com/the-good-times-are-over-for-uk-housebuilders/

[TheCountOfNowhere]

2 minutes ago, Yellow_Reduced_Sticker said:

The good times are over for UK housebuilders!

https://moneyweek.com/the-good-times-are-over-for-uk-housebuilders/

Have HTB marks started building gallows ?

[Clueless Imbecile]

On 17/06/2018 at 09:58, MrXxx said:

Question regarding 3. above...is it fair to assume that if we have the recession scenario DB has postulated above and house prices crash that shares would do the same?...thus meaning if you put a high% -of your wealth in equities and then wanted to house buy you could take a hit on your equities investment?

That is what I'm afraid of.

If I keep a lot of my savings in cash, hoping to be able to buy a cheap house after a price crash, then whilst I'm waiting for the crash my savings are earning a pitance in interest.

On the other hand, if I keep a lot of my savings in stockmarket index-tracker funds, then it could be that if house prices did crash then the stockmarket might also crash, leaving me with having to take a loss on my stockmarket trackers in order to raise money to use to buy a house.

It's difficult to know what my best option is.

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

 

[Talking Monkey]

7 hours ago, DurhamBorn said:

He means brains over capital investment i think.He doesnt seem to understand thats due to importing so much.The factories are there,they are in China.I bring it in from there rather than work in one down the road like i used to.Once the £ is toast though thats not happening,like now,margins are being crushed.The underlying backbone of our economy can not provide the goods and services we consume.To do so means massive investment.It will happen everywhere.China will have to rush out the One belt one Road,the west produce more again.If he is there in 7 years he will be seeing rates head towards 10%.

Hi DB I don't get  the point about China's One Belt One Road, why will they have to rush it out, if the west are producing won't it be less necessary for China to ship goods to the west.

[Clueless Imbecile]

On 04/06/2018 at 22:26, DurhamBorn said:

Leveraged assets will be hit very very hard,in the UK that means houses (BTL will see huge pain).

Hi DurhamBorn.

Thanks for your comments on this fascinating thread.

Just wondering what you think will happen to house prices (in the UK) over the next, say, 10 years, in particular:

(1) How low do you think prices will fall, in percentage terms, relative to today's prices?

(2) When do you think prices will reach the bottom?

(3) Once prices have reached the bottom, do you think they would then begin to rise or would they instead stagnate for a few years?

My dilemma is whether or not to sell some of my index-tracker units and hold cash in a savings account in the hope of buying a house cheaper. However, I guess the cash would be getting eroded by inflation. Unless a price crash happened in the next 2 or 3 years I might be better off keeping my existing index-tracker holdings and simply putting any new savings (e.g. from my salary) into a savings account (whereas previously I would have used them to buy more index-tracker units).

I know nobody can be certain about stuff like this.

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

 

[A_P]

5 minutes ago, Clueless Imbecile said:

That is what I'm afraid of.

If I keep a lot of my savings in cash, hoping to be able to buy a cheap house after a price crash, then whilst I'm waiting for the crash my savings are earning a pitance in interest.

On the other hand, if I keep a lot of my savings in stockmarket index-tracker funds, then it could be that if house prices did crash then the stockmarket might also crash, leaving me with having to take a loss on my stockmarket trackers in order to raise money to use to buy a house.

It's difficult to know what my best option is.

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

 

Is it not all relative though? Stockmarket goes down in all likely so will other asset classes including house prices? It's only a loss if you realise it and cash out. Unlikely you'll need to cash out in the event of an immediate crash. Conversely the house prices will probably be on a decline over a number of years while stocks/indexes might be on the way up.

[PatronizingGit]

21 minutes ago, Talking Monkey said:

Hi DB I don't get  the point about China's One Belt One Road, why will they have to rush it out, if the west are producing won't it be less necessary for China to ship goods to the west.

Maybe 3D printers will allow production to be repatriated and globalization will go into reverse 

[Talking Monkey]

3 hours ago, DurhamBorn said:

@sancho panza excellent resource and well worth having on the thread.The SA miners stand out of course if sentiment changes or gold runs they should explode.Kinross also really stands out for me and Yamana.Their prices are based on past mistakes mostly and debt slightly too high.

DB why does Kinross stand out to you, just trying to understand the metrics you use to assess them

[sancho panza]

4 hours ago, DurhamBorn said:

@sancho panza excellent resource and well worth having on the thread.The SA miners stand out of course if sentiment changes or gold runs they should explode.Kinross also really stands out for me and Yamana.Their prices are based on past mistakes mostly and debt slightly too high.

I've reconfigured it with the lowest at the top.Looking at Kinross balance sheet,it's hard to see why they're so lowly rated with such a good chunk of equity.

Even Sibanye.Less leveraged than the AA by a country mile.

Some names from the top of the sheet that surprise besides Kinross/Yamana and the SA Goldies-Couer,Centerra,New Gold....Barrick!!!!...........Tahoe

Worth noting that if you applied an average rating across the sector.......

 

One question I would raise is regarding the Royalty co's.The thought just struck me-and I'm no expert in this filed so answers gratefully received-what happens in a sustained bull,could the miners ditch the royalty co's and leave them high and dry.They're the ones that have had a cracking 5 year run out perfoming the miners by a country mile.In a bull,will the miners outpace the royalty co's?

 

https://www.marketwatch.com/investing/stock/kgc/financials/balance-sheet

[Van Lady]

@DurhamBorn

Thank you for bringing this top notch and fascinating thread to this forum. Thank you to all interesting contributors too.I don’t have anything to add but I read it daily.

Epic!

 

[sancho panza]

1 hour ago, Clueless Imbecile said:

My dilemma is whether or not to sell some of my index-tracker units and hold cash in a savings account in the hope of buying a house cheaper. However, I guess the cash would be getting eroded by inflation. Unless a price crash happened in the next 2 or 3 years I might be better off keeping my existing index-tracker holdings and simply putting any new savings (e.g. from my salary) into a savings account (whereas previously I would have used them to buy more index-tracker units).

 

If you're saving for a house and would struggle to replace any money you lose,then stick to cash.Yeah you get some burn but index trackers as I've said previously-DYOR- are full of all sorts of overpriced dross and carry a lot more risk than buying a few safeish(word used advisedly) stocks eg the utilities.

You need a roof over your head way more than you need stocks under your bed.Just my view.I'm a long term renter but we'll be buying at some point I hope.

Worth noitng that you should likely construct your own inflation data given that most likely you won't be in any way represented by the pap the ONS churns out.

Your personal inflation rate may not be as much as you think.

[Castlevania]

@sancho panzaare your figures adjusted for debt?