Credit deflation and the reflation cycle to come.

[Barnsey]

7 hours ago, sancho panza said:

I'm beginning to view the next run down  as more likely to be a slow burn thing,like you.

Can't remember where I saw it Sancho (Reuters?) but there was a recent chart of current VIX eerily following near identical pattern as 2000.

[MrXxx]

3 hours ago, Barnsey said:

No doubt they're decreasing in power but Nov second biggest month for buybacks, all about Jan blackout period IMO as Feb usually one of the weakest months, after the Dec hike and ongoing trade war things could look very different by then, likely GDP peaked in Q2.

Can someone explain this to me....I know why/how companies buy back their own shares, but are there time based restrictions/periods in the year when they are only allowed to do this?

[Barnsey]

Can't buyback shares leading up to quarterly report, insider knowledge etc

EDIT: period of ~5 weeks

[Harley]

1 minute ago, Barnsey said:

Can't buyback shares leading up to quarterly reports (prior 2-4 weeks), insider knowledge etc

All clear this week?

[Barnsey]

3 minutes ago, Harley said:

All clear this week?

Getting there Harley, according to this report from 1st November, 50% now in the clear to resume buybacks

 

[Talking Monkey]

10 hours ago, sancho panza said:

Good Wolf st piece on buybacks.

https://wolfstreet.com/2018/11/02/where-the-heck-are-share-buybacks-to-bail-out-this-rotten-stock-market/

 

'But companies appear to be backing off their share buybacks: $156 billion in buyback plans were announced in Q3, down from $437 billion in Q2 and down from $242 billion in Q1, according to TrimTabs, cited by the WSJ.

Despite their miserable performance record, these share buybacks have been the only thing that was – if barely – holding up the stock market. But where are they when you need them the most?

Another share buyback queen is GE. Since 2013, it wasted a breath-taking $152 billion on share buybacks (YCharts data), much of it between 2015 and 2017, despite a huge hole in its pension fund, deteriorating operations, and its sick finance division. But its shares have collapsed, and it is now in the process of dismantling itself.

152 Billion in buybacks for GE Jesus SP that is a ridiculous waste of value, the entire board should be booted out for dereliction of duty for allowing such a thing. I reckon in years to come we'll look at all the share buyback thing of the last decade as idiocy of the highest level

[Barnsey]

2 minutes ago, Talking Monkey said:

153 Billion in buybacks for GE Jesus SP that is a ridiculous waste of value, the entire board should be booted out for dereliction of duty for allowing such a thing. I reckon in years to come we'll look at all the share buyback thing of the last decade as idiocy of the highest level

Lots of building momentum for buybacks to be banned as they were pre 1982, huge political win for those embracing policy reversal in the bust.

Has to happen and the damage ahead will expose this fraud in a very dramatic way.

[MrXxx]

23 hours ago, Nicolas Turgeon said:

A more frequent than usual update from Steven Kaplan is on his blog --

http://truecontrarian-sjk.blogspot.com/

Looks like he's going long on emerging markets.

I didn't understand the last comment about ETFs...surely if they have to sell off some of their holdings (to`destroy` shares) this would be done in a pro rata fashion, and so should make no difference...anyone care to explain?

[Democorruptcy]

Stock buyback calendar https://www.marketbeat.com/stock-buybacks/

[Harley]

22 minutes ago, Democorruptcy said:

Stock buyback calendar https://www.marketbeat.com/stock-buybacks/

"Publicly-traded companies often buyback shares of their stock when they believe their company's stock is undervalued".

Sure, something like that!

[DurhamBorn]

39 minutes ago, Talking Monkey said:

152 Billion in buybacks for GE Jesus SP that is a ridiculous waste of value, the entire board should be booted out for dereliction of duty for allowing such a thing. I reckon in years to come we'll look at all the share buyback thing of the last decade as idiocy of the highest level

Buybacks are mostly due to the Fed and the fact at the end of a dis-inflation cycle there is nothing worth investing in for companies.The UK has seen similar affects due to tax credits.Why invest in higher skills/machines ect to lift productivity when tax credits will do the job for you and you just pay minimum wage or close.?

There is nothing wrong with companies stopping investing at the right time,but cash should be kept on the balance sheet,or handed back to share holders in special dividends.The UK market is much better at this and many companies that produce high free cash,but need limited investment have done this.Much better for shareholders in the long run.

The next cycle wont suit buy backs.Debt will be getting more expensive through the cycle,and inflation will make sure companies invest quickly to try to cut costs and/or pay down debts.The opposite to the last cycle.

What is 100% certain is that most companies and individuals have no idea a debt deflation is upon us soon (its already here,but will show itself in its glory to everyone).They also have no idea that the next cycle is almost certain to be a reflation,and on top of that a reflation that due to structural and political reasons is one that cranks up velocity so quickly that the inflation genie will be unleashed.Inflation at 10%,or maybe even up to 15% is coming in the west,and i fully expect rates to get close to 10%,or as my model is showing me 14%.BTL for example will be swept away in the UK (the leveraged version) as rates crank up faster than rents and destroy the model.

Only a few select sectors do very well in these sorts of cycles.Its the ones who have already a lot invested in assets that depreciate over the reflation cycle and that can increase their prices before and during their cost increases.For instance a telco sees most of its costs in investing in the network.If inflation hits 6% and it puts its prices up 6%,most of that will fall to free cash flow and increase profits by 20%.A car company will see all the costs of its components going up before it can sell the car,and probably to a point where they are unable to pass all the increases on.Someone like Royal Mail has most of its costs in fuel and wages.These rise behind the inflation (once a year wages,fuel hedged 3 years out),but they can increase prices tomorrow morning.

These are simplistic examples,falling demand,competitors going under,big debs,government action etc can all change things,but we want to be swimming with the tide.

 

 

[Harley]

On 02/11/2018 at 21:34, mcdongle said:

That's actually a great reason for not reporting unit sales, if now instead, they start reporting an "enrichment index" - on how much they have improved their customer's lives after the customer bought an Apple product or service. 

The air blowing this bubble is really beginning to stink!

[Barnsey]

19 minutes ago, Harley said:

The air blowing this bubble is really beginning to stink!

Thankfully the markets are seeing right through this "enrichment" bull****

[leonardratso]

enrichment index i think should go in the intangibles column (unit sales in the tangibles).

Yes, as soon as i see intangibles given some sort of number then im immediately suspicious. Stock, fine, work in progress, fine, cash, fine. Intangibles - hmmm, what is it ? suppose could include brand value, but who prices that? some advertising agency? how do you quantify it? ah yes, enrichment index, something thats a thing. I dont think so.

[sancho panza]

4 hours ago, Barnsey said:

Lots of building momentum for buybacks to be banned as they were pre 1982, huge political win for those embracing policy reversal in the bust.

Has to happen and the damage ahead will expose this fraud in a very dramatic way.

From Wolf St.Looks like I dodged the bullet on l'Oreal.Quite why they're buying back at a twenty year peak,I'll never know.

Also exposes the myth that they do anything to create long term shareholder value.

 

https://wolfstreet.com/2018/11/02/where-the-heck-are-share-buybacks-to-bail-out-this-rotten-stock-market/

'To help things along, numerous companies, as their shares plunged upon reporting earnings, have come out with new promises of big-fat share repurchases – though they’re not obligated to buy back those shares, and it could be just all share-manipulation hype. The WSJ lists some candidates:

Cosmetics firm Estée Lauder Co s., whose shares dropped by as much as 14% during October, on Wednesday announced plans to buy back 40 million shares, or 11% of the total outstanding. The New York-based company had spent more than $240 million buying back its own stock over October, it said.

Semiconductor-equipment maker Rudolph Technologies Inc., based in Massachusetts, pointed to “undervalued market conditions” on Monday as it announced it had spent $14.3 million completing a buyback plan. The firm’s shares dropped as much as 20% in October.

This week, International Business Machines Corp. authorized $4 billion worth of buybacks, and financial-exchanges operator Intercontinental Exchange Inc. announced a plan for repurchases worth $2 billion.

Let’s take a gander at International Business Machines [IBM], one of the biggest share buyback queens. Since 2000, it blew $146 billion on share buybacks. The chart below shows the cumulative amounts since 2013 that IBM wasted on share buybacks: $43 billion (data via YCharts):

Wall Street gurus keep hyping that share buybacks “unlock shareholder value,” or “return cash to shareholders,” or some such thing. But here’s what IBM’s share buybacks did to shareholder value, as measured by the stock price:

IBM has been buying back the shares it issued its own executives as part of their stock compensation plans, and the shares it issued to buy other companies, including minuscule privately-owned startups for billions of dollars. Buybacks covered up the dilutive effects from those actions.

IBM could have spent this money on research and invented something cool. But that would have been too hard. Far better to farm out much of the work to cheap countries like India, shut down US operations, waste money on share buybacks in a vain effort to manipulate up its shares, and instead watch them go to heck.

Infamous share buyback queen Sears Holdings, which blew, wasted, and destroyed $5.8 billion on share buybacks between 2005 and 2010 to manipulate up the share price, is now bankrupt and will likely be liquidated, with zero value for shareholders.

But companies appear to be backing off their share buybacks: $156 billion in buyback plans were announced in Q3, down from $437 billion in Q2 and down from $242 billion in Q1, according to TrimTabs, cited by the WSJ.

Despite their miserable performance record, these share buybacks have been the only thing that was – if barely – holding up the stock market. But where are they when you need them the most?

Another share buyback queen is GE. Since 2013, it wasted a breath-taking $152 billion on share buybacks (YCharts data), much of it between 2015 and 2017, despite a huge hole in its pension fund, deteriorating operations, and its sick finance division. But its shares have collapsed, and it is now in the process of dismantling itself. Read… What General Electric Is Doing to Dodge the Question: “When Will GE File for Bankruptcy?”  

[Democorruptcy]

3 hours ago, DurhamBorn said:

For instance a telco sees most of its costs in investing in the network.If inflation hits 6% and it puts its prices up 6%,most of that will fall to free cash flow and increase profits by 20%.

How does that work with telco licences? They seem to be something that keeps being upgraded 2g, 3g, 4g, 5g etc.

Vod recently paid 2.4bn for 5g in Italy and seemed to be complaining they had to pay too much.

Quote

 

Vodafone shelled out €2.4bn for spectrum across a range of frequencies, but in a statement told governments they needed to keep future auctions fair.

"Auctions should be designed to balance fiscal requirements with the need for investment to enable economic development," chief exec Nick Read said. "Telecoms is the sector that enables all other sectors to participate in the Gigabit society.

"It is critical that European governments avoid artificial auction constructs which fail to strike a healthy balance for the industry."

http://www.cityam.com/264503/telcos-shell-out-eur65bn-italian-5g-spectrum-auction

 

[DurhamBorn]

16 minutes ago, Democorruptcy said:

How does that work with telco licences? They seem to be something that keeps being upgraded 2g, 3g, 4g, 5g etc.

Vod recently paid 2.4bn for 5g in Italy and seemed to be complaining they had to pay too much.

 

Same as the network.They pay for a certain amount of time.If they pay £2billion,then inflation runs up to 8% a year they are laughing.They put prices up 8%,but the network and the licences are depreciating at a set amount so it all flows to free cash flow.Of course towards the end of the cycle this all catches up.The end up paying top whack just before we enter a dis-inflation and they then struggle for years and years.A full on reflation will probable help the sectors that like those conditions for around 7 years.Then it will start to equal out,then decline.Buy then we will be selling and buying holiday homes to rent out in the currency collapse that follows most reflation cycles..

[Lightscribe]

The networks pay for an allocation of bands of frequency within a spectrum. 5G will be particularly interesting, as the radio waves will be narrow and focused through beam forming. This means a lot more smaller femtocells will need to be installed in places like shopping areas, businesses and even on homes, as the penetration of the waves will be minimal. These will link back to the IMS that allows for no call drops (same as 4G LTE). 

[azzuri82]

This coming week should be very interesting in US equities, will let us know the trend for the next couple of months.

The destination is of course going to be the same, but this week will give a hint on overall timelines.

[Talking Monkey]

8 hours ago, DurhamBorn said:

Buybacks are mostly due to the Fed and the fact at the end of a dis-inflation cycle there is nothing worth investing in for companies.The UK has seen similar affects due to tax credits.Why invest in higher skills/machines ect to lift productivity when tax credits will do the job for you and you just pay minimum wage or close.?

There is nothing wrong with companies stopping investing at the right time,but cash should be kept on the balance sheet,or handed back to share holders in special dividends.The UK market is much better at this and many companies that produce high free cash,but need limited investment have done this.Much better for shareholders in the long run.

The next cycle wont suit buy backs.Debt will be getting more expensive through the cycle,and inflation will make sure companies invest quickly to try to cut costs and/or pay down debts.The opposite to the last cycle.

What is 100% certain is that most companies and individuals have no idea a debt deflation is upon us soon (its already here,but will show itself in its glory to everyone).They also have no idea that the next cycle is almost certain to be a reflation,and on top of that a reflation that due to structural and political reasons is one that cranks up velocity so quickly that the inflation genie will be unleashed.Inflation at 10%,or maybe even up to 15% is coming in the west,and i fully expect rates to get close to 10%,or as my model is showing me 14%.BTL for example will be swept away in the UK (the leveraged version) as rates crank up faster than rents and destroy the model.

Only a few select sectors do very well in these sorts of cycles.Its the ones who have already a lot invested in assets that depreciate over the reflation cycle and that can increase their prices before and during their cost increases.For instance a telco sees most of its costs in investing in the network.If inflation hits 6% and it puts its prices up 6%,most of that will fall to free cash flow and increase profits by 20%.A car company will see all the costs of its components going up before it can sell the car,and probably to a point where they are unable to pass all the increases on.Someone like Royal Mail has most of its costs in fuel and wages.These rise behind the inflation (once a year wages,fuel hedged 3 years out),but they can increase prices tomorrow morning.

These are simplistic examples,falling demand,competitors going under,big debs,government action etc can all change things,but we want to be swimming with the tide.

 

 

Hi DB with inflation at 10-15% is that close to 2025, does the roadmap show when we clear say 5% is that around 2022 or even earlier. With inflation like that taking off the incentive for companies to automate will be huge, I really struggle to see how wages will keep up.

BTL sure will be swept away I'm guessing house price falls will be huge once interest rates are past 5-6%, let alone 10%

[DurhamBorn]

1 hour ago, Talking Monkey said:

Hi DB with inflation at 10-15% is that close to 2025, does the roadmap show when we clear say 5% is that around 2022 or even earlier. With inflation like that taking off the incentive for companies to automate will be huge, I really struggle to see how wages will keep up.

BTL sure will be swept away I'm guessing house price falls will be huge once interest rates are past 5-6%, let alone 10%

I had 2025 down as the likely end of a reflation,but now i think 2027 might be the end point.A lot depends on when TLT hits around $155 (dollar 85ish) as i think thats the point the spending taps get turned on.The leads and lags are crucial.Wages wont keep up in most sectors.That wont matter for people not leveraged as house prices will collapse and so they will save the missed wages back on less interest and capital payments.Those holding the baby will lose of course.The big losers in the UK will be leveraged BTL and those who MEWed their houses.They will end up handing over lots of interest as rates increase or go under.The other losers will be people who think their home is their pension.It wont be.With rates at 7%+ insurers wont be rushing to offer equity release,it wont exist for most people.

Political instability will see governments rush to invest in energy etc and they will starve other sectors to do it.The public sector will not be getting big pay increases and their pensions will be inflated away.

 

[Barnsey]

28 minutes ago, DurhamBorn said:

That wont matter for people not leveraged as house prices will collapse and so they will save the missed wages back on less interest and capital payments.Those holding the baby will lose of course.The big losers in the UK will be leveraged BTL and those who MEWed their houses.They will end up handing over lots of interest as rates increase or go under.

This is the bit that makes me most nervous (purely selfish reasons), as I've said before I'm planning on buying a modest place (my first) in a modest area of the UK in the bust ahead (2020-21), hopefully securing a long fix at "recession stimulus" rates before they creep higher. Not sure I can face another 5+ years of renting 

[AWW]

2 minutes ago, Barnsey said:

This is the bit that makes me most nervous (purely selfish reasons), as I've said before I'm planning on buying a modest place (my first) in a modest area of the UK in the bust ahead (2020-21), hopefully securing a long fix at "recession stimulus" rates before they creep higher. Not sure I can face another 5+ years of renting 

I'll be looking to buy next summer. 10 year fixes at 2.5% are easy to find.

[Lavalas]

Just now, Barnsey said:

This is the bit that makes me most nervous (personally), as I've said before I'm planning on buying a modest place (my first) in a modest area of the UK in the bust ahead (2020-21), hopefully securing a long fix at "recession stimulus" rates before they creep higher. Not sure I can face another 5+ years of renting 

Same here, but probably sooner. I dunno - a big deposit, good fix and slow grind down might work out great. A sharper fall, not so much I guess in terms of regretting not waiting and getting better but there would have to be some wage inflation to couple with a good fix. It’s a bind but we’ve got to get on with our lives and I’m afraid this is the path for us now 🤷🏻‍♂️

[A_P]

Just now, AWW said:

I'll be looking to buy next summer. 10 year fixes at 2.5% are easy to find.

 

Just now, AWW said:

I'll be looking to buy next summer. 10 year fixes at 2.5% are easy to find.

Similar to you guys. Planning on buying in a cheaper part of the UK. Will be a modest house on a ten-year fix and try and knock it out in less.