Credit deflation and the reflation cycle to come.

[DurhamBorn]

8 hours ago, Dogtania said:

Thanks dB.  The whole hedge angle is impressively simple but sound. Though l will keep an eye on and quite possibly sell some or most. 

However I really appreciate the concept of ratio in risk/ return.  Especially at the moment potentially in pm / miners where the obvious downside is going to zero or at least close to... Weighed against a far bigger upside possible. 

Its crucial in the long term.I dont know when this cycle ends,but i do know we are close and the longer the rubber band is pulled at an extreme the harder and faster it snaps back.We can never be sure,but i do think the PMs and silver more than anything offers a huge capital building chance for ordinary people.The facts are if silver ran to $50 some of the pure play silver mines will 10x in price.If silver ran to $100+ then 20x,30x50x is on the cards.If an ordinary investor even spread £5k through 5 pure play silver miners and they were cut in half is that so bad,given the other side is a return of say £25k,maybe £50k+,?.

 

[invalid]

From todays DM:

Quote

 

Families borrowed £8.17billion in August alone, 10 per cent more than in the same month last year. The figures – from the Office for National Statistics – cover credit and store cards, personal loans and car finance.

Spending in household goods stores grew by 11.1 per cent – the strongest monthly rate for a decade. This includes furniture and household appliances such as fridges, washing machines, televisions as well as purchases in DIY stores.

 

 

I'm surprised its still growing. People must be getting close to being maxed out by now? Or is the growing consumer debt due to growing immigration? Import lots of new people not because they help build a productive economy but because they can take on lots of debt.

Propping up an economy with consumer debt, what could go wrong?

[Barnsey]

@DurhamBorn, @sancho panza et al, any of you linking the likely possibility of the deflationary bust ahead with Kondratiev Wave theory? Seems to add up, and have seen it pop up in a few recent blog articles and tweets

https://en.m.wikipedia.org/wiki/Kondratiev_wave

[DurhamBorn]

11 minutes ago, Barnsey said:

@DurhamBorn, @sancho panza et al, any of you linking the likely possibility of the deflationary bust ahead with Kondratiev Wave theory? Seems to add up, and have seen it pop up in a few recent blog articles and tweets

https://en.m.wikipedia.org/wiki/Kondratiev_wave

Iv never really considered it much as i prefer cross market numbers work,but it does lend itself to credit cycles being the main route to debt deflations.At the moment nobody seems to think credit is in a cycle and that it will continue to grow forever.However liquidity is getting slowly removed.

[Barnsey]

3 hours ago, DurhamBorn said:

Iv never really considered it much as i prefer cross market numbers work,but it does lend itself to credit cycles being the main route to debt deflations.At the moment nobody seems to think credit is in a cycle and that it will continue to grow forever.However liquidity is getting slowly removed.

Despite the slow pace of liquidity removal, it's quite remarkable just what an effect it's having on markets outside the US, which tells me you're bang on about a QT reversal and QE4 on steroids to come, if there's no stock crash this year over the pond then they might sneak in a hike or 2 before next summer, but that seems to be when things truly kick off, as the last prosperous bastion signals time's are a changin'.

Interesting tweet featuring a short clip of "full price" apartment buyers in China smashing up a sales office as they decided to drop the prices by a 1/3, rare to see these clips make it out of the mainland, this is what's happening folks as the US keeps turning the screw ever tighter...Wouldn't be surprised to see scenes like this in the UK from HTB "victims"

https://twitter.com/polarmcbear/status/1048473629015465984

[subutai80]

PM miners as a hedge against the passive investment bubble?

https://thefelderreport.com/2018/10/04/bang-the-ultimate-anti-passive-trade/

I get asked all the time where to look to take advantage of the growing opportunities outside of the purview of the passive mania. Well, I can’t find a more obvious sector than the precious metals miners. It looks to me like they have been left for dead and, for this reason, present a terrific opportunity for true value investors, regardless of the bullish case for gold. And if the gold price takes off, today’s BANG share prices will certainly look like an unbelievable bargain in retrospect.

A few months ago I wrote a post arguing that over the next several years the BANG stocks were very likely to outperform the FANG stocks. To briefly recap, the former, made up of the top four gold miners in the world (Barrick, Agnico Eagle, Newmont and Goldcorp), currently trade at their cheapest valuations in at least two decades.

 

[MrXxx]

2 hours ago, subutai80 said:

PM miners as a hedge against the passive investment bubble?

https://thefelderreport.com/2018/10/04/bang-the-ultimate-anti-passive-trade/

I get asked all the time where to look to take advantage of the growing opportunities outside of the purview of the passive mania. Well, I can’t find a more obvious sector than the precious metals miners. It looks to me like they have been left for dead and, for this reason, present a terrific opportunity for true value investors, regardless of the bullish case for gold. And if the gold price takes off, today’s BANG share prices will certainly look like an unbelievable bargain in retrospect.

A few months ago I wrote a post arguing that over the next several years the BANG stocks were very likely to outperform the FANG stocks. To briefly recap, the former, made up of the top four gold miners in the world (Barrick, Agnico Eagle, Newmont and Goldcorp), currently trade at their cheapest valuations in at least two decades.

 

Looks like flawed logic to me...why are the FANGs appearing in so many more ETFs?...investor greed?...no, simply as being the major companies that appear in the majority of indices, and these indices being popular with the providers it's inevitable that they will have a greater number of ETF appearances.

[DurhamBorn]

17 minutes ago, MrXxx said:

Looks like flawed logic to me...why are the FANGs appearing in so many more ETFs?...investor greed?...no, simply as being the major companies that appear in the majority of indices, and these indices being popular with the providers it's inevitable that they will have a greater number of ETF appearances.

Yes,the next cycle will probably be very cruel to passive index funds.I always remember the fact the market will always hurt the most people it can.Everyone has their pensions and investments in passive tackers.The people who wont of course will be the 1%.Many value stocks pay good dividends so at least if people drip in near highs the dividends undo some of the damage.However buying stocks that pay no,or tiny dividends on massive PE ratios is a very poor idea.

[A_P]

But won't the total market passive funds which aim to replicate the market just replace the poor performers with the good performers? As long you're constantly buying and reinvesting divis one should be ok in the long run. I think where people will get hurt is the ones that are buying the stories and putting their money into very specific funds/companies eg FANGS, Tesla etc. The US currently is making up 55% of a total world market? so FANGs are only a 5 points of a total world tracker.

[sancho panza]

 

11 hours ago, Barnsey said:

@DurhamBorn, @sancho panza et al, any of you linking the likely possibility of the deflationary bust ahead with Kondratiev Wave theory? Seems to add up, and have seen it pop up in a few recent blog articles and tweets

https://en.m.wikipedia.org/wiki/Kondratiev_wave

I'm a huge believer in longer term cycles.I first became aware of Kondratiev 10+ years ago but have the following random views if anyone wants to discuss

1) debt deflations are once in a lifetime event.I agree with the view that there are essentially two sorts of recessions ,

first inventory recessions where too much stock gets built,prices get cut,inventories clear,recession ends.

Second,credit recessions which feature  a contraction in credit, a banking system collapse.Recession ends when banking system deleverages.

2) debt deflations are brutal affairs for societies and often resut in serious social/poltical upheavel,hence people don't forget them.It's no srprise that the repaeak of Glass Steagal-1998 heralded an era of boom tht's still ongoing thanks to QE.The deleveraging due in 08 was stopped by CB activity.

3)Hence timing between 1929(last credit recession) and 08 is 79 years,up to 2018 is 89 years.The reason why Kondratiev is ignored in my view is that people fixate on the number of years rather than generations.The generation that saw the last great depression were born before 1915,moslty left govt by the mid 80's to 90's.So the spring,summer and Autmn lasted longer than they would previously as the generation that remembered GD1 was still in govt.

4) I've found -from my chart work-that you sometimes have to juggle your parameters if you're trading longer timeframes.

5) Paul Hodges has done some great work on demogrpahics and generational spending.

7 hours ago, Barnsey said:

Despite the slow pace of liquidity removal, it's quite remarkable just what an effect it's having on markets outside the US, which tells me you're bang on about a QT reversal and QE4 on steroids to come, if there's no stock crash this year over the pond then they might sneak in a hike or 2 before next summer, but that seems to be when things truly kick off, as the last prosperous bastion signals time's are a changin'.

Interesting tweet featuring a short clip of "full price" apartment buyers in China smashing up a sales office as they decided to drop the prices by a 1/3, rare to see these clips make it out of the mainland, this is what's happening folks as the US keeps turning the screw ever tighter...Wouldn't be surprised to see scenes like this in the UK from HTB "victims"

https://twitter.com/polarmcbear/status/1048473629015465984

Nice find,govts get boxed into corners in the good times and the long only brigade forget what losses are ..until of course they dump it on red for the 20th time.

7 hours ago, subutai80 said:

PM miners as a hedge against the passive investment bubble?

https://thefelderreport.com/2018/10/04/bang-the-ultimate-anti-passive-trade/

I get asked all the time where to look to take advantage of the growing opportunities outside of the purview of the passive mania. Well, I can’t find a more obvious sector than the precious metals miners. It looks to me like they have been left for dead and, for this reason, present a terrific opportunity for true value investors, regardless of the bullish case for gold. And if the gold price takes off, today’s BANG share prices will certainly look like an unbelievable bargain in retrospect.

A few months ago I wrote a post arguing that over the next several years the BANG stocks were very likely to outperform the FANG stocks. To briefly recap, the former, made up of the top four gold miners in the world (Barrick, Agnico Eagle, Newmont and Goldcorp), currently trade at their cheapest valuations in at least two decades.

 

Nice first post if I may say.BANG stocks-I like that.is a dangerous game.

Passive investing

3 hours ago, Admiral Pepe said:

But won't the total market passive funds which aim to replicate the market just replace the poor performers with the good performers? As long you're constantly buying and reinvesting divis one should be ok in the long run. I think where people will get hurt is the ones that are buying the stories and putting their money into very specific funds/companies eg FANGS, Tesla etc. The US currently is making up 55% of a total world market? so FANGs are only a 5 points of a total world tracker.

Which all works until it doesn't.ETF's have grown in stature as more of the long onlys' load up.They've never been tested in a market where people are trying exit en masse.The sort of people buying URA currently,are unlikely to behave like that as it's a small part of the market.However,look at the FTSE 100 and some of the longer term charts of it's constituents.Can you imagine a rout and people trying to dump boat loads of Whitbread or Intertek into a plunging market,especially when one of the main buyers of stocks was the passive tracker funds that are facing withdrawals.......that has risk writ large in eyes.

I don't hold ETF's for this very reason but I'd consider a few of the ones that get mentioned on here.

I just see their supposed inherent strenght as their greatest weakness ie you think you've diversified away from risk when actually you've driven straight into it.They are after all mechanical sellers and buyers.Whereas the individual or managed fund can hold Centrica/Vodafone indefinitely.

[A_P]

18 minutes ago, sancho panza said:

Passive investing

Which all works until it doesn't.ETF's have grown in stature as more of the long onlys' load up.They've never been tested in a market where people are trying exit en masse.The sort of people buying URA currently,are unlikely to behave like that as it's a small part of the market.However,look at the FTSE 100 and some of the longer term charts of it's constituents.Can you imagine a rout and people trying to dump boat loads of Whitbread or Intertek into a plunging market,especially when one of the main buyers of stocks was the passive tracker funds that are facing withdrawals.......that has risk writ large in eyes.

I don't hold ETF's for this very reason but I'd consider a few of the ones that get mentioned on here.

I just see their supposed inherent Centrica as their greatest weakness ie you think you've diversified away from risk when actually you've driven straight into it.They are after all mechanical sellers and buyers.Whereas the individual or managed fund can hold Centrica/Vodafone indefinitely.

12

and how long could you be waiting for a Vodafone or Centrica to rebound after a rout? One might not even see the day it could be that long. You're betting on a specific case, who knows how anything will pan out. Can you beat the market? Would you really want to be in a particular managed/active fund which could be holding onto dogs indefinitely? Can you really pick that active manager that can beat the market? Perhaps, perhaps not.

disclosure:

I hold a global world market fund, Vodafone, Centrica and two gold etfs

 

 

[DurhamBorn]

1 hour ago, Admiral Pepe said:

and how long could you be waiting for a Vodafone or Centrica to rebound after a rout? One might not even see the day it could be that long. You're betting on a specific case, who knows how anything will pan out. Can you beat the market? Would you really want to be in a particular managed/active fund which could be holding onto dogs indefinitely? Can you really pick that active manager that can beat the market? Perhaps, perhaps not.

disclosure:

I hold a global world market fund, Vodafone, Centrica and two gold etfs

 

 

I think passive funds are great calls in dis-inflation cycles as they capture the simple flow of money into shares.However a reflation cycle is a different beast because they tend to go hand in hand with a distribution cycle.There are very few areas that will enjoy the cycle.It doesnt take many years of 10% inflation and 15% falls in Amazon stock to wipe 90%+ of the value away (i expect 80/90% falls in the Fang stocks with no decent dividends to make up for any of the falls).

[Bear Hug]

On 02/10/2018 at 21:17, DurhamBorn said:

Some of my biggest investment returns have come from companies selling into a falling market,tobacco being the key one.It all depends on if you can increase prices at the same rate you get the falls in demand.Royal Mail has superb free cash flow and it uses half of it a year to buy up parcel companies around the world.No other courier will take over the small packet business they simply dont have the scale.The way to look at it is the postman delivers small packets and its the few letters in each street that is the profit margin that other couriers dont have.Amazon also have zero chance of every doing it.

https://www.theguardian.com/business/2018/oct/05/slump-in-royal-mail-shares-hits-workers-planning-to-cash-in

Quote

The profits warning came just days after management wrote to employees asking them if they wanted to pre-register to sell their share allocations on the five-year anniversary of the company’s flotation on 11 October. 

Does anyone have any guesses / strategies for 11 October?  A bloodbath when they all rush for exit?  Or is the full extent of the fall already priced in?

Worth setting up a limit buy order?  At £2? 

 

[Lightscribe]

43 minutes ago, Bear Hug said:

https://www.theguardian.com/business/2018/oct/05/slump-in-royal-mail-shares-hits-workers-planning-to-cash-in

Does anyone have any guesses / strategies for 11 October?  A bloodbath when they all rush for exit?  Or is the full extent of the fall already priced in?

Worth setting up a limit buy order?  At £2? 

 

I’m watching Royal Mail with interest. I think they have further to fall, with the likes of above and turbulence in the stock market. But as DB says, low debt, good infrastructure, (yes unions will always be a factor) and a niche market that not many others can compete. One on the list to average in.

[Bobthebuilder]

7 hours ago, Sideysid said:

I’m watching Royal Mail with interest. I think they have further to fall, with the likes of above and turbulence in the stock market. But as DB says, low debt, good infrastructure, (yes unions will always be a factor) and a niche market that not many others can compete. One on the list to average in.

I think RM will out last a lot of competition.

I order a lot online as i'm sure we all do, i always choose RM for the delivery regardless of cost as i always get the item.( i have had stuff go missing with other companies in the past).If i'm not in, they leave a card for me to collect the item from the parcel office. I have even been given another parcel outside the office when spotted by my usual postie.

Cant beat that service and im not talking in the rural shires here but central London.

I had a mate who worked for another delivery company, lets just say he always had "stuff" for sale.

[DurhamBorn]

8 hours ago, Bear Hug said:

https://www.theguardian.com/business/2018/oct/05/slump-in-royal-mail-shares-hits-workers-planning-to-cash-in

Does anyone have any guesses / strategies for 11 October?  A bloodbath when they all rush for exit?  Or is the full extent of the fall already priced in?

Worth setting up a limit buy order?  At £2? 

 

It shows the mentality of people doesnt it.All wanting to sell for a holiday,spending etc,no talk of i want to compound the dividends up.I bought some at £3.52,il buy more at £3.18 and £2.82.If i was those workers id be keeping the shares because a lot of them will lose their jobs going forward and they might be pleased of money to pay the bills rather than a holiday.Shame one of us wasnt a postie,"Im buying silver miners with the money" 

[A_P]

4 minutes ago, Bobthebuilder said:

I think RM will out last a lot of competition.

I order a lot online as i'm sure we all do, i always choose RM for the delivery regardless of cost as i always get the item.( i have had stuff go missing with other companies in the past).If i'm not in, they leave a card for me to collect the item from the parcel office. I have even been given another parcel outside the office when spotted by my usual postie.

Cant beat that service and im not talking in the rural shires here but central London.

I had a mate who worked for another delivery company, lets just say he always had "stuff" for sale.

on a personal level, RM is up there as the worst. Get probably two letters a week and with each letter, they stuff a ton extra crap through the letterbox I don't need or care for. Postie knocked on my door a few days ago and gave me a parcel. Didn't say anything just walked off, I noticed right away it was for a neighbour. .When I said to him it wasn't for me he pretended not to hear me and walked off  . Plus if youre not in you have to go to del office to collect and mine are only open till 2pm

But let's be honest on the parcel front RM are lightyears behind the competition.

[DoINeedOne]

Managed to get a small amount of RM shares at 340p will buy more if it drops certain percentages 

[DurhamBorn]

3 minutes ago, Admiral Pepe said:

on a personal level, RM is up there as the worst. Get probably two letters a week and with each letter, they stuff a ton extra crap through the letterbox I don't need or care for. Postie knocked on my door a few days ago and gave me a parcel. Didn't say anything just walked off, I noticed right away it was for a neighbour. .When I said to him it wasn't for me he pretended not to hear me and walked off  . Plus if youre not in you have to go to del office to collect and mine are only open till 2pm

But let's be honest on the parcel front RM are lightyears behind the competition.

My small business is online retail and iv used all the Parcel companies and i now use Parcelforce 90% of the time and sometimes APC.Their booking and tracking is now fantastic,they carry more sizes than most,and in 800 parcels this year iv only had 1 problem and that was more the customer.No other courier company does letters,or small packets.Thats the key.APC deliver my parcel for £7 only one in the street.Royal mail deliver probably 3 little parcels,6 packets and 15 letters into the same street.Thats why RM have such strong free cash flow compared to other couriers who mostly make close to nothing.

[A_P]

6 minutes ago, DurhamBorn said:

My small business is online retail and iv used all the Parcel companies and i now use Parcelforce 90% of the time and sometimes APC.Their booking and tracking is now fantastic,they carry more sizes than most,and in 800 parcels this year iv only had 1 problem and that was more the customer.No other courier company does letters,or small packets.Thats the key.APC deliver my parcel for £7 only one in the street.Royal mail deliver probably 3 little parcels,6 packets and 15 letters into the same street.Thats why RM have such strong free cash flow compared to other couriers who mostly make close to nothing.

Depends what you're sending really. My firm uses DPD. We had nothing but hassle with RM. Parcelforce were always causing us problems and our customers had a nightmare retrieving undelivered parcels. They would never leave them in a safe place either. Our customers love DPD with their tracking and RM is nothing close to it unless its recently been upgraded? Other firms are now delivering late into the evening and even on Sundays. RM are too slow to adapt. They might have the small packet market sawn up for now but things can change.

APC as well are literally the worst courier going. They are independent depots working under an umbrella. Try getting through to a local depot to chase a parcel 

[leonardratso]

31 minutes ago, DurhamBorn said:

My small business is online retail and iv used all the Parcel companies and i now use Parcelforce 90% of the time and sometimes APC.Their booking and tracking is now fantastic,they carry more sizes than most,and in 800 parcels this year iv only had 1 problem and that was more the customer.No other courier company does letters,or small packets.Thats the key.APC deliver my parcel for £7 only one in the street.Royal mail deliver probably 3 little parcels,6 packets and 15 letters into the same street.Thats why RM have such strong free cash flow compared to other couriers who mostly make close to nothing.

nay sir, i have info on a competitor (parcel based) and they have massive cash flow, years ago(2006) the peak period (sept->jan) number of parcels delivered max per day was 300K.

Today outside that period (ie none peak) they quite easily top 800K per day, last years peak day was 1.8M, and they expect more this year,  since middle of september they have topped 1M a day every day except sundays which is a very limited service.

Its mainly clients(businesses) to customer (B2C) but after the largest client the next most lucrative is C2C (customer to customer, ie ebay, amazon market place, just general public).

But they are not publically listed, so you wont see any or much of this especially in raw £'s (or euro;s). The numbers are probably a minnow of RM's but they are doing better than they ever have.

[Bricks & Mortar]

1 hour ago, Admiral Pepe said:

they stuff a ton extra crap through the letterbox I don't need or care for.

Don't shoot the messenger.

On the carriers - I prefer to order from retailers who use Royal Mail.  I suppose it depends on the staff in your local office/depot and how good or overworked they are.  There was a time, some years ago, when I lived elsewhere, that I'd prefer other carriers.  But now it's Royal Mail for me.  I shop around looking at who'll be delivering the parcel, and will pay a bit more to get that.  A key point is the RM depot about 1m from my house, while other carriers depots are much further, up to 50 miles.

[A_P]

34 minutes ago, Bricks & Mortar said:

Don't shoot the messenger.

On the carriers - I prefer to order from retailers who use Royal Mail.  I suppose it depends on the staff in your local office/depot and how good or overworked they are.  There was a time, some years ago, when I lived elsewhere, that I'd prefer other carriers.  But now it's Royal Mail for me.  I shop around looking at who'll be delivering the parcel, and will pay a bit more to get that.  A key point is the RM depot about 1m from my house, while other carriers depots are much further, up to 50 miles.

haha. Well it more to highlight it seems a postie is primarily a leaflet dropper and delivering letters is secondary.

I would say you're very much in the minority then. Of course, there are some customers who like specific couriers, we have a few like that, particularly one long-standing customer who pays extra to have his products shipped by TNT. However, nearly almost all customers want their parcels yesterday and they don't want to pay more for it, if they don't have to. But they definitely prefer a carrier who will give them an ETA such as DPD. On that front RM are very much behind. Even Tuffnels will give you the drivers name now  

Just to add, prior to use utilising DPD, we were using a network of couriers. Depending on dims and weight it would automatically direct the parcel to Parcelforce, TNT, yodel etc. From customers, feedback is much better now and our perspective less time spent chasing parcels etc. Unfortunately, we do still have use other couriers for larger shipments as DPD are very specific about what they will take.

[MrXxx]

16 hours ago, DurhamBorn said:

I think passive funds are great calls in dis-inflation cycles as they capture the simple flow of money into shares.However a reflation cycle is a different beast because they tend to go hand in hand with a distribution cycle.There are very few areas that will enjoy the cycle.It doesnt take many years of 10% inflation and 15% falls in Amazon stock to wipe 90%+ of the value away (i expect 80/90% falls in the Fang stocks with no decent dividends to make up for any of the falls).

I think it all depends on the index that the ETF follows and how it's weighted. Passive investment (through index ETFs) will not give you the big gains, but likewise it will not give you the big losses..it smoothes the volatility for you.

To win at active investing you need to dedicate time/effort to it (and a bit of luck)...most are not prepared or do not want to do this so accept smaller returns.

I see both approaches like putting a To Win bet or an Each Way bet, active investment the former, passive the latter...perhaps the ideal approach is a bit of both?, passive for your essential capital, and active for your fun money when someone down the pub gives you a `surefire` winner! :-)

[A_P]

1 hour ago, MrXxx said:

I think it all depends on the index that the ETF follows and how it's weighted. Passive investment (through index ETFs) will not give you the big gains, but likewise it will not give you the big losses..it smoothes the volatility for you.

To win at active investing you need to dedicate time/effort to it (and a bit of luck)...most are not prepared or do not want to do this so accept smaller returns.

I see both approaches like putting a To Win bet or an Each Way bet, active investment the former, passive the latter...perhaps the ideal approach is a bit of both?, passive for your essential capital, and active for your fun money when someone down the pub gives you a `surefire` winner! :-)

2

This is very much the case. An ETF/OEIC tracking the FTSE All-World has 5% allocation to FAANGs, whereas an ETF tracking the S & P 500 it will be 15%. 

I recommend reading (if you haven't already) Investing Demystified. Or just watch his short videos on youtube