Credit deflation and the reflation cycle to come.

[MrXxx]

17 hours ago, JMD said:

I should mention that the reason I quote my isa/pension figures above is to attempt to show - that although I do definitely wish  to take full advantage of the coming reflation cycle - that also for me, because of the stated large amounts involved - I am probably at risk of being too conservative and too deliberative in my decisions.... so any advise would be very welcome.

Nothing wrong with being too conservative in your financial position, as it depends on your stage of life I.e near to retirement and/or attitude to risk. If close to retirement then a cautious, capital preservation approach (as against growth) can be very wise!

[sancho panza]

3 hours ago, DurhamBorn said:

I really like the look of SOIL SP.It has some of my favourite stocks in the sector in it like K+S AG and il have a look at some of the others they own.The Barings global owns a lot of things like tractor makers etc.I think the two would give very nice exposure to the sector for the next cycle.Can we still buy SOIL in the UK?

Not as yet.We're mainly in cash awaiting developments,short some,long some.I'm still not buying ETF's really until we're the other side of this.For now trying to identify the value within an ETF and not get exposure to the stuff we don't want.

In terms of this ETF,it's pretty beat up over 7 years...

https://www.investing.com/etfs/global-x-fertilizers-potash-advanced-chart

As you know,I'm very interested in this sector for a whole host of reasons and some of the shares are offering real value already on a historical basis eg Mosaic,Yara,K&S,Compass.Of the 33 companies listed, tehre are some real geo political gems such as Nutrien.I think with 7bn people and counting,this sector will only go one way longer term.

https://etfdb.com/etf/SOIL/#etf-holdings&sort_name=weight&sort_order=desc&page=2

[Bear Hug]

25 minutes ago, sancho panza said:

Not as yet.

Thanks! Degiro app has very little information other than the name - saved me from buying LSE-listed SOIL (crude oil shorts)!

[DurhamBorn]

2 hours ago, sancho panza said:

Not as yet.We're mainly in cash awaiting developments,short some,long some.I'm still not buying ETF's really until we're the other side of this.For now trying to identify the value within an ETF and not get exposure to the stuff we don't want.

In terms of this ETF,it's pretty beat up over 7 years...

https://www.investing.com/etfs/global-x-fertilizers-potash-advanced-chart

As you know,I'm very interested in this sector for a whole host of reasons and some of the shares are offering real value already on a historical basis eg Mosaic,Yara,K&S,Compass.Of the 33 companies listed, tehre are some real geo political gems such as Nutrien.I think with 7bn people and counting,this sector will only go one way longer term.

https://etfdb.com/etf/SOIL/#etf-holdings&sort_name=weight&sort_order=desc&page=2

I agree.This long dis-inflation has seen agriculture push the arable land to its limits and most is depleted now.It should prove a fantastic sector for free cash flow growth in te next cycle.I think il start to really have a look at the companies ready to invest.

[DurhamBorn]

On 09/03/2019 at 10:07, Yellow_Reduced_Sticker said:

@Bricks & Mortar

Yeah of course i get all my ingredients REDUCED!!!

however i've dropped the maple syrup  (as run out of the reduced bottle! ) and replaced it with Thai coconut palm sugar. i get it as I'm out here nearly every year..

its MEGA CHEAP 45p a bag!

I'm out here now, and where I'm staying is near a Tesco Express...for some odd reason i found out what time they do the REDUCTIONS!

Here's a sample of yesterdays bargains...no doubt the foxy Thai girl till cashier looks forward to seeing me every day   !!!

 

Incredible that your frugal ways even stretch to Thailand,your such a tight fisted so and so,and i mean that in the nicest possible way .For tea we are having  a chicken dinner,two large cooked half roast chickens i got in Tesco last night for 75p each instead of £3.00 (i got 4,two for work baits) and a bag of 3 broccoli heads for 22p,huge bag of parsnips for 18p.Last night we had a king prawn stir fry.Stir fry reduced to 12p in Tesco.King prawns reduced to 95p and the Thai chilly sauce one of the 3 for £1 out of Home bargains.I made a garlic bread to go with it on my Ferarri pizza maker for 12p.

[leonardratso]

1 hour ago, DurhamBorn said:

Incredible that your frugal ways even stretch to Thailand,your such a tight fisted so and so,and i mean that in the nicest possible way .For tea we are having  a chicken dinner,two large cooked half roast chickens i got in Tesco last night for 75p each instead of £3.00 (i got 4,two for work baits) and a bag of 3 broccoli heads for 22p,huge bag of parsnips for 18p.Last night we had a king prawn stir fry.Stir fry reduced to 12p in Tesco.King prawns reduced to 95p and the Thai chilly sauce one of the 3 for £1 out of Home bargains.I made a garlic bread to go with it on my Ferarri pizza maker for 12p.

steady there big spender.

[JMD]

6 hours ago, MrXxx said:

Nothing wrong with being too conservative in your financial position, as it depends on your stage of life I.e near to retirement and/or attitude to risk. If close to retirement then a cautious, capital preservation approach (as against growth) can be very wise!

Yes I agree with you about being cautious and capitol preservation. But despite my recent pension questions I don't plan to retire for another twenty years. 

In regards risk reduction in the short term, I believe the correct allocation of funds or properly balancing a portfolio - in order to take advantage of the coming reflationary cycle - particularly over next 2/3 years, is probably the most practical way of mitigating against losing say 25%+ of personal wealth. I am grateful for the open discussions here re. the looming economic cycle and also the practical suggestions on how to position for it, and I am still reading back posts in order to learn more about this fascinating subject.      

   

[Harley]

I've shown myself to be a bit of a paranoic guy when it comes to the regulatory stuff I think the govt will revert to after it has tried and failed at QE, etc.  Well, now the latest MoneyWeek podcast has been talking about it and I'm really scared!  Stuff like if the govt mandates 20% in UK Treasuries for ISAs/SiPPs.  After all why not given how generous the State has been to you in the past with the tax breaks.  Reminds me of the child catcher in Chitty Chitty Bang Bang leading the kids into the cage with promises and sweeties!

I said cash was trash when QE started and didn't do anything (rabbit, headlights, etc).  I'll be badgered if I'll do that again!

[Harley]

On 09/03/2019 at 11:56, DurhamBorn said:

Im buying around 15 companies in ladders at the moment and Royal Mail is one of them.Im down on them as a portfolio after divis by around 6% (some like BAT are up 23%,Go Ahead +37%,some like Centrica down 24%).Iv added the likes of Standard Life Aberdeen to my ladders lately as well.Id be very happy if they turned as a portfolio at around 15% down.Iv also added small ladders into a few gambling stocks,Playtech and William Hill.These will be smaller holdings than others,but i like the sector in a reflation,though tax is a big risk.Iv also added Babcock Engineering and BAE to my ladders.Babcock just below the present price and BAE 7% below it.

I will slowly skim profits from my PM miners and fund lower ladder buys going foward.

My aim is to get roughly 72% into my ladder stocks,and 23% into PM miners (mostly silver) and some physical PMs.

BAT wasnt a reflation stock,but i sold a huge holding above £50 id had for decades,and the drop to £24 was a great chance to add back an old friend.They are up 20%+,but i wont be selling them.Il keep them for good now probably (i only bought back around 20% of what i sold at £50+)

Il also start to slowly buy things like the Barings Global Agriculture Class 1 fund in any big sell off.

Fancy running through the logic - what things do you look for in a reflation stock?

[DurhamBorn]

25 minutes ago, Harley said:

Fancy running through the logic - what things do you look for in a reflation stock?

Lots of different things Harley.

In buying the transports its because they hedge fuel 4 years out and i expect massive runs up in prices.That will force people out of cars onto buses.They can also increase prices with RPI while depreciation is set in stone for 5 to 10 years.People will be ditching the car in droves as prices crush them elsewhere.

Something like Royal Mail i expect competitors to go under.Their main cost is wages.Wages go up once a year.If they increase prices ahead of wages it will flow to free cash.

Energy companies because the price will go up,again faster than depreciation.The new cycle will see the economy move to more electric.

Telecoms are tricky.High debts mean increased payments and more investor worry.However again they have fixed depreciation somewhat yet can increase prices with inflation flowing direct to free cash.

Silver Miners for the explosion in silver use from EVs and solar (and telcos) topped by investment buying.

Gambling companies as people tend to gamble more when they are struggling.

Agriculture stocks due to the transfer of power to them from the consumer stocks during a reflation.

Military manufacture as tensions will rise and rise during inflation as it always does.

Not all will win of course,inflation can crush margins if the management arent clever,and demand can fall faster than they can make up.Having a semi monopoly really helps.

I simply tilt my portfolio towards inflation loving stocks.Its still balanced,just if dis-inflation continued id expect it to under-perform.If im right i expect it will out-perform,perhaps by 2% to 4% a year and as you know,that makes a big deal when compounding a decent sized portfolio.

 

[Majorpain]

1 hour ago, Harley said:

I've shown myself to be a bit of a paranoic guy when it comes to the regulatory stuff I think the govt will revert to after it has tried and failed at QE, etc.  Well, now the latest MoneyWeek podcast has been talking about it and I'm really scared!  Stuff like if the govt mandates 20% in UK Treasuries for ISAs/SiPPs.  After all why not given how generous the State has been to you in the past with the tax breaks.  Reminds me of the child catcher in Chitty Chitty Bang Bang leading the kids into the cage with promises and sweeties!

I said cash was trash when QE started and didn't do anything (rabbit, headlights, etc).  I'll be badgered if I'll do that again!

Unlikely with the Tories, not too many votes in telling people to buy low yielding govt debt unless its a national emergency.  The biggest problem currently is not getting money (they can print it if desperate), but how do they unwind all the malinvestment of the last 10 years without everything blowing up.  They cant keep Stocks, housing and bonds rising forever without the "have nots" revolting or PM's making another 2011 moonshot and letting everyone in on the secret.

[Harley]

1 hour ago, DurhamBorn said:

Lots of different things Harley........

Ta for that.

I haven't been idle since you mentioned a while back you'll talk some more about reflation stocks, and have started some research.

Pretty limited so far in that they all say the same limited things (which may or may not be correct):

. Real estate, especially land (store of value)

. Gold (store of value)

. Oil stocks (pricing power, often the cause of higher inflation)

. Inflation linked bonds (like the BoE pension fund!)

. Materials (pricing power, hold hard assets which go up in value)

. Infrastructure (hold hard assets which go up in value)

. Commodities (pricing power)

. Agriculture producers and machinery manufacturers (pricing power, increased earnings if a weak dollar)

. Financial companies (rising interest rates)

. Emerging markets (via commodity exposure and manufacturing)

. Transportation companies (demand, hold hard assets which go up in value)

. Bias towards small caps (leaner, potential to leverage higher prices)

. Fixed rate mortgage and other debt holders

. Particuarly from a US POV, international diversification (especially if falling dollar), mainly through currency diversification

. Growth rather than dividend or value stocks

. Those with market barriers to entry

And to avoid:

. Bonds (unless maybe if you hold individual ones to maturity), especially long term bonds

. Bond like stocks (i.e. dividend payers - ouch!) such as utilities (where inflation will reduce the attractiveness of relatively fixed yields)

. Variable rate debtors (including credit card debtors)

. Supermarkets (margin destruction)

. Retail (margin destruction)

The trouble with such a standard sector approach is it ignores the actual criteria (especially as not all companies in a favoured sector are necessarily good).

Still, gets you thinking the right way.

[Harley]

1 hour ago, Majorpain said:

Unlikely with the Tories, not too many votes in telling people to buy low yielding govt debt unless its a national emergency.  The biggest problem currently is not getting money (they can print it if desperate), but how do they unwind all the malinvestment of the last 10 years without everything blowing up.  They cant keep Stocks, housing and bonds rising forever without the "have nots" revolting or PM's making another 2011 moonshot and letting everyone in on the secret.

The current financial, and indeed social and political, situation is so serious it's beyond political flags and colours.  Where currently is the largest growing split - between Labour (in total) and the Conservatives or between the public and the political (and other) classes?  An "emergency" is indeed on the way.  It will be "managed", as piecemeal as possible, but that is essentially what it will be.  The conditioning and plumbing has been underway for some time.  Every minor crisis/issue since 2008 (from financial to social) has been opportunistically used to further tighten the screw.  The silent roll call of measures is legion.  And anyway the breakdown of those historic political divisions is underway.  Who knows what Conservative or Labour party we have any more!  Also, I mentioned after QE (money printing) when that fails, or rather when that is demonstrably seen to have already failed, and is accepted as such by all.  We are going through that unveiling now - several "communities" are already well passed that stage and deep into the action stage.  The smart money, private and government, is well on its way to being fully invested in PMs and other such safe havens (assets and physical and "conceptual" locations).  As usual it will be the little innocent but niave guy who will take the fall.  Kicking off when the shelves have already been well stripped bare is too late.  Those that survive, whether that be benefit or just limit the fall, will be those able to free think and front run what is already well underway.  We are talking about a reset and all that means.  None of this needs to be nutter stuff, the necessary steps make sense under many scenarios.  One just needs to add another dimension to ones investing, etc - retention of capital.  Think out the box because soon the box will be gone!

[Harley]

2 hours ago, DurhamBorn said:

Energy companies because the price will go up,again faster than depreciation.The new cycle will see the economy move to more electric.

And the Norwegian Sovereign Fund essentially said last week that it saw the current providers moving into that area so were not selling them, just the explorer and support type companies.

[Thorn]

1 hour ago, Harley said:

And the Norwegian Sovereign Fund essentially said last week that it saw the current providers moving into that area so were not selling them, just the explorer and support type companies.

Got my chosen PM miners all set... got some deflation stocks all set...

Durhamborn many thanks for this education. Most of everybody I know is bumbling along and doing The Right Thing.

Thank You Sir.

[Harley]

Two ways to make money:  don't spend it and don't let it get stolen! 

Brainstorming some things to be wary of:

. Exchange controls.

........

Deleted so as not to scare!

[MrXxx]

9 hours ago, Majorpain said:

Unlikely with the Tories, not too many votes in telling people to buy low yielding govt debt unless its a national emergency.  The biggest problem currently is not getting money (they can print it if desperate), but how do they unwind all the malinvestment of the last 10 years without everything blowing up.  They cant keep Stocks, housing and bonds rising forever without the "have nots" revolting or PM's making another 2011 moonshot and letting everyone in on the secret.

The thing is, I think this is part of the game the politicians play (much like the whole Brexit scenario). They screw the `have nots` over really tightly and then retract a little at the end of their political cycle, this way the `unwashed` feel they are getting something/a sense of relief, the politicians get their vote, whilst the rich go `three steps forward and one step back`!

[Majorpain]

9 hours ago, Harley said:

The current financial, and indeed social and political, situation is so serious it's beyond political flags and colours.  Where currently is the largest growing split - between Labour (in total) and the Conservatives or between the public and the political (and other) classes?  An "emergency" is indeed on the way.  It will be "managed", as piecemeal as possible, but that is essentially what it will be.  The conditioning and plumbing has been underway for some time.  Every minor crisis/issue since 2008 (from financial to social) has been opportunistically used to further tighten the screw.  The silent roll call of measures is legion.  And anyway the breakdown of those historic political divisions is underway.  Who knows what Conservative or Labour party we have any more! 

 

29 minutes ago, MrXxx said:

The thing is, I think this is part of the game the politicians play (much like the whole Brexit scenario). They screw the `have nots` over really tightly and then retract a little at the end of their political cycle, this way the `unwashed` feel they are getting something/a sense of relief, the politicians get their vote, whilst the rich go `three steps forward and one step back`! 

All really symptoms of both major parties moving to the centre ground, 10 years ago if you voted Blue or Red you essentially got the same policies with a different wrapper.

Now with Corbynism and ERG/Moggism, the wings are on the march.  The Independent group splitting is a good sign that we are reverting to normal running where if you vote for someone else the policies actually change IMO. 

[Bricks & Mortar]

3 hours ago, Harley said:

Deleted so as not to scare!

Really?    The whole premise of this thread is discussion of events that will be very scary indeed, if they sneak up on you by surprise. 

[leonardratso]

2 hours ago, Bricks & Mortar said:

Really?    The whole premise of this thread is discussion of events that will be very scary indeed, if they sneak up on you by surprise. 

maybe it involves ghosts and ghouls and the such like 'scary'.

[JMD]

12 hours ago, Harley said:

Ta for that.

I haven't been idle since you mentioned a while back you'll talk some more about reflation stocks, and have started some research.

Pretty limited so far in that they all say the same limited things (which may or may not be correct):

. Real estate, especially land (store of value)

. Gold (store of value)

. Oil stocks (pricing power, often the cause of higher inflation)

. Inflation linked bonds (like the BoE pension fund!)

. Materials (pricing power, hold hard assets which go up in value)

. Infrastructure (hold hard assets which go up in value)

. Commodities (pricing power)

. Agriculture producers and machinery manufacturers (pricing power, increased earnings if a weak dollar)

. Financial companies (rising interest rates)

. Emerging markets (via commodity exposure and manufacturing)

. Transportation companies (demand, hold hard assets which go up in value)

. Bias towards small caps (leaner, potential to leverage higher prices)

. Fixed rate mortgage and other debt holders

. Particuarly from a US POV, international diversification (especially if falling dollar), mainly through currency diversification

. Growth rather than dividend or value stocks

. Those with market barriers to entry

And to avoid:

. Bonds (unless maybe if you hold individual ones to maturity), especially long term bonds

. Bond like stocks (i.e. dividend payers - ouch!) such as utilities (where inflation will reduce the attractiveness of relatively fixed yields)

. Variable rate debtors (including credit card debtors)

. Supermarkets (margin destruction)

. Retail (margin destruction)

The trouble with such a standard sector approach is it ignores the actual criteria (especially as not all companies in a favoured sector are necessarily good).

Still, gets you thinking the right way.

Why financial companies? I assume you mean insurance companies (not banks)?

And why growth stocks? I thought value/(sustainable)dividend stocks were the way forward?

I saw a recent Niels Jenson (author of 'The end if indexing') podcast and he says because of banking/debt issues in future, stay away from them. But he also said there would be more lucrative investments in trade-finance deals between developed and emerging nations, and more lease deals (e.g. aviation) where the asset is not owned but leased. Any ideas on how to invest in these two areas?

 

[Harley]

3 hours ago, JMD said:

Why financial companies?

Any that can benefit from charging the higher interest rates via larger margins.  But obviously other factors to consider before investing in any.

3 hours ago, JMD said:

And why growth stocks?

The high dividend players are like bonds.  Will the divs increase in line with inflation and higher interest rates (money in the bank).

I'm just quoting what a lot of search results are saying to "investing for inflation".

[Harley]

4 hours ago, JMD said:

Any ideas on how to invest in these two areas?

I saw that good video too and heard MoneyWeek also mention it but have not looked yet.

[Harley]

6 hours ago, Bricks & Mortar said:

Really?    The whole premise of this thread is discussion of events that will be very scary indeed, if they sneak up on you by surprise. 

I thought I was going off on one so self censored the post.  Plus I didn't want to kick off an arguably pointless debate on the validity of each at the expense of focussing on what to do if you buy into the core premise.  Sometimes I just want a happy life and avoid exposing myself only to get curt negative comments and/or a lack of reciprocity.  Plus some times I write stuff for personal clarity and motivation, which does not mean it's very interesting to others.  Plus probably pretty standard stuff so not sure if it was worth the read.  Plus done on the phone so needs editing to not waste people's time.  See, I do try!  I have it saved somewhere for my personal use and action, although what do is a killer!

[Agent ZigZag]

That is a very adult and mature post you have made Harley