Credit deflation and the reflation cycle to come.

[sancho panza]

On 07/07/2019 at 11:18, Democorruptcy said:

On the subject of telcos, I joined Three and am paying £20 a month for unlimited minutes, unlimited texts, unlimited data (tethering allowed so I'm streaming to my smart TV etc). I've also used it abroad recently where the unlimited data drops to 19gb a month (no tethering). Just checked and it's now £22 a month but half price for 6 months! I'm wondering about telco profit margins?

Doesn't bode well for the fixed lines operators does it?

On 07/07/2019 at 16:22, 0x80 said:

Nice twitter thread on EU recession/Lagarde/state of the banks:

https://threadreaderapp.com/thread/1147878009870983169.html

Interesting read.Jsut checked Credit Suisse and UBS  lower than the late 1980's......................

 

 

[Democorruptcy]

18 minutes ago, sancho panza said:

Doesn't bode well for the fixed lines operators does it?

No, I've been thinking that model is dead in the water. I suppose that's why BT have gone into TV and bought EE.

[sancho panza]

6 minutes ago, Democorruptcy said:

No, I've been thinking that model is dead in the water. I suppose that's why BT have gone into TV and bought EE.

BT have heritage pension problems as well as overpaying for TV.I'm mainly going to be staying in purer mobile plays eg Vod

[DurhamBorn]

Id agree straight forward land lines as a model will struggle,but not when packaged with everything else.Very few homes will go without a landline.There is also the fact a lot of mobile traffic goes over the networks.Then the fact the network is pretty much fully invested and is a cash cow.I have a small holding in BT but i am going to increase it.They have issues like the pension as SP mentioned,but there is a good change they could turn into a cash flow machine in around five years.Vodafone have enough on in Europe to turn the screws on BT and the other players will likely all be increasing prices going forward.The whole sector looks undervalued to me and could be a really nice prospect going forward.

[spygirl]

6 hours ago, DurhamBorn said:

Id agree straight forward land lines as a model will struggle,but not when packaged with everything else.Very few homes will go without a landline.There is also the fact a lot of mobile traffic goes over the networks.Then the fact the network is pretty much fully invested and is a cash cow.I have a small holding in BT but i am going to increase it.They have issues like the pension as SP mentioned,but there is a good change they could turn into a cash flow machine in around five years.Vodafone have enough on in Europe to turn the screws on BT and the other players will likely all be increasing prices going forward.The whole sector looks undervalued to me and could be a really nice prospect going forward.

*ALL* mobile traffic goes over the fixed line network. It gets as as the base station - the aerial thing - and its on the the fixed line network.

Basically, mobile is only mobile as far as the the base station.

For stuff like 5g and its large adootpin you need to massively expand the fixed line network to string up all the base stations and keep the mbiles cells as small as possible.

 

 

[DurhamBorn]

1 hour ago, spygirl said:

*ALL* mobile traffic goes over the fixed line network. It gets as as the base station - the aerial thing - and its on the the fixed line network.

Basically, mobile is only mobile as far as the the base station.

For stuff like 5g and its large adootpin you need to massively expand the fixed line network to string up all the base stations and keep the mbiles cells as small as possible.

 

 

I think whats interesting Spy is that once you get to the point where depreciation starts to fall on those assets and income grows even just with inflation.Massive free cash.Of course more investment is needed still what with FTTH and 5g.I think the whole sector is undervalued at the moment by a long way.There is a very good chance it could do what the tobacco sector did over the last 30 years.Consolidate then be cash machines.

[sancho panza]

10 hours ago, DurhamBorn said:

Id agree straight forward land lines as a model will struggle,but not when packaged with everything else.Very few homes will go without a landline.There is also the fact a lot of mobile traffic goes over the networks.Then the fact the network is pretty much fully invested and is a cash cow.I have a small holding in BT but i am going to increase it.They have issues like the pension as SP mentioned,but there is a good change they could turn into a cash flow machine in around five years.Vodafone have enough on in Europe to turn the screws on BT and the other players will likely all be increasing prices going forward.The whole sector looks undervalued to me and could be a really nice prospect going forward.

As ever,I'm an utter hypocrite,if it got cheap enough,I'd buy some.I'm jsut not sure it's cehap enough yet.I've eyed telstra as well over the years.

I also think there's going to be the issue of how much mobile networks can carry into the home.My friend who has dropped his landline is managing ok.But busnisses and homes with more a than a few people in may need landlines.

 

ref Telstra I had a looka t their pension fund a while back as they are a legacy network and the situation wasn't too bad iirc.They've been on a buying spree that dwarfs the original heritage business a bit like Sing tel.But that's likely why we'd be looking at options like that rather than BT.Sing tel offering good exposure to mobile netwroks in Asia.We're probably two years away from buying but teltra appears to have turned a corner already.

Currently 3-87 AUD last year 2-60 AUD bottom.For anyone who'd like to see an example of a share price bottoming well before a big drop.

 

[sancho panza]

3 hours ago, spygirl said:

*ALL* mobile traffic goes over the fixed line network. It gets as as the base station - the aerial thing - and its on the the fixed line network.

Basically, mobile is only mobile as far as the the base station.

For stuff like 5g and its large adootpin you need to massively expand the fixed line network to string up all the base stations and keep the mbiles cells as small as possible.

 

 

Indeed, but BT's ability to leverage it's retail business will be significantly reduced if consumers drop landlines.The network will still be earning fees but BT as a whole will be seeing reduced revenues.Just my view.

[sancho panza]

well worth a watch.Most on here know this but Wolf frames the issues succinctly.

Where's the inflation-not in prices but assets.Discussess devaluation of currency.

'House price inflation kills demand.'

 

[sancho panza]

https://moneymaven.io/mishtalk/economics/zombification-perfected-negative-yield-junk-bonds-take-hold-in-europe-BTobjVIUukysBoqR6czllw/

https://wolfstreet.com/2019/07/09/negative-yielding-junk-bonds-have-arrived-in-europe/

Negative-Yielding Junk Bonds Have Arrived in Europe

by Wolf Richter • Jul 9, 2019 • 37 Comments • Email to a friend

NIRP is systematically rotting out basic brain functionality.

Amid rampant market expectations of another and even bigger and grander round of QE by the ECB, which would also be buying corporate bonds and old bicycles, the total amount of bonds with negative yields has risen to nearly $13 trillion, according to Bank of America Merrill Lynch.

The perversion of negative interest rates imposed by central banks such as the ECB, the Bank of Japan, the Swiss National Bank and a slew of others, and the even bigger perversion of negative-yielding corporate debt apparently does a job on investors’ minds.

In a negative-yield environment, you can no longer buy bonds to hold them to maturity because you’d be guaranteed a loss. You’d have to buy them solely on the hopes of even more deeply negative yields in the near future that would allow you to slough off these critters to the next guy before they eat you up.

And this type of thinking has now completely wiped out whatever was left of investors’ capacity to act rationally. Once you start getting into central-bank mandated negative yields, rationality no longer applies because negative-yielding debt is irrational by definition: Why would you pay someone to borrow money from you?

And this type of intellectual short-circuit has now spread to euro-denominated junk bonds. These are risky bonds that are too risky to be considered “investment grate.” They were issued by over-leveraged companies with iffy or negative cashflows and a considerable probability of default, especially during a downturn.

And yes, you guessed it: there are now 14 junk-rated companies with euro-denominated bonds that have negative yields, according to Bloomberg:

1. Ardagh Packaging Finance plc /Ardagh Holdings USA Inc.
2. Altice Luxembourg SA
3. Altice France SA
4. Axalta Coating Systems LLC
5. Constellium NV
6. Arena Luxembourg Finance Sarl
7. EC Finance Plc
8. Nexi Capital SpA
9. Nokia Corp.
10. LSF10 Wolverine Investments SCA
11. Smurfit Kappa Acquisitions ULC
12. OI European Group BV
13. Becton Dickinson Euro Finance Sarl
14. WMG Acquisition Corp.

What does it even mean if you buy a junk bond with a negative yield?

If you’re lucky and the company does not default, it will redeem the bond at face value, and the company will pay you the face value of the bond on the date when the bond matures, plus accrued interest. Face value and the coupon payments over the term of the bond are all you’re going to get if you hold till maturity.

If the company defaults on the way — which is not unlikely, given its precarious financial condition that led to the junk credit rating in the first place — you’re out part or all of your principal investment. For taking this considerable risk, you’re being rewarded with a big yield, in theory.

But if you pay a lot more for the bond than face value, and if this premium you’re paying is bigger than the remaining interest payments, you end up in the hole, with a guaranteed loss unless you can sell the bonds to someone else at an even bigger premium and even greater negative yield before the bond matures.

But the closer you get to the maturity date of the bond, the closer the value of the bond will be to its face value, because on maturity date, face value and the interest that has accrued since the last interest payment are all you’re going to get.

What causes these junk bonds to have a negative yield is not some kind of magic but benighted investors whose brain is malfunctioning to the point that they bid up these bonds to such levels that the premium they pay over face value guarantees them a negative yield.

Not all euro junk bonds are adorned with a negative yield just yet. According to the ICE BofAML Euro High Yield Index, the average yield of these critters is 2.83% at the moment – down from 4.9% at the start of the year, when the ECB’s QE program ended:

Obviously, investors who’d bought euro junk bonds when euro junk bond yields were 10% or 6% or even 4% made out like bandits if they sold the bonds at current yields to some newcomers.

And these newcomers look at the above chart, and they see the trend that you can keep making out like bandits by buying junk bonds even at negative yields because surely yields will even be lower and more negative in the future, no matter what. And after years of central bank shenanigans and scorched-earth tactics, you can’t really blame these investors for having lost their minds and playing this idiotic game.'

 

[DurhamBorn]

1 hour ago, sancho panza said:

well worth a watch.Most on here know this but Wolf frames the issues succinctly.

Where's the inflation-not in prices but assets.Discussess devaluation of currency.

'House price inflation kills demand.'

 

Im actually shocked at the positions people are in SP.At work a guy i was talking to yesterday is temporary.They moved last year into a new build he is 40 years old.The mortgage is £900 a month with about 7% equity cough cough.He said they struggle as his wife works part time.So they struggle when he works in the best paid factory in the area and on interest rates rock bottom.All that money going into the banks when it should be going into the local economy in spending.This is why Brown brought in tax credits.His big idea was tax the city and use it to pass out to the regions in benefits that they can pretend arent benefits.Im pretty convinced housing is going to take the brunt in the UK of the deflation.

[Yellow_Reduced_Sticker]

2 hours ago, sancho panza said:

Indeed, but BT's ability to leverage it's retail business will be significantly reduced if consumers drop landlines.The network will still be earning fees but BT as a whole will be seeing reduced revenues.Just my view.

I'm doing the reseach on this as where i'm moving to, i DON'T want a landline but need internet via my PC as i have a phone line of my PC (ONLY £3.99 p/mouth 100miuntes its for biz use only) As i moving out to the sticks i can't get Virgin Media or Hyperoptic. anyways as the link below states your only saving maybe a fiver or so a month...

https://www.broadbandchoices.co.uk/ask-our-expert/without-landline

On 09/07/2019 at 11:33, DoINeedOne said:

A government plan could see cigarettes banned in England by 2030

The Daily Mail reports it has seen a government green paper outlining plans to encourage 100% of smokers to switch to e-cigarettes within eleven years.

 

Daily Mail so....

For me though provides another buying opportunity if the price drops more

Imperial Brands - is it just me or others here but i get a guilt complex if i was to invest into a company that is basically KILLING People? OR i'm i WRONG?

anyway...just read this artilce...

https://moneyweek.com/510544/return-of-the-copper-bull-market/

instead of investing in Imperial Brands ...maybe i'll go back to my childhood days where in the late 70's while still at school, i would go to the local tip/building sites and scavenge copper & lead pipes! and i must say did OK ...whatda ya think guys OR are ya ALL to busy eyeing up YUMMY MUMMIES when ya getting your yellow sticker REDUCDTIONS!

 

[sancho panza]

39 minutes ago, DurhamBorn said:

Im actually shocked at the positions people are in SP.At work a guy i was talking to yesterday is temporary.They moved last year into a new build he is 40 years old.The mortgage is £900 a month with about 7% equity cough cough.He said they struggle as his wife works part time.So they struggle when he works in the best paid factory in the area and on interest rates rock bottom.All that money going into the banks when it should be going into the local economy in spending.This is why Brown brought in tax credits.His big idea was tax the city and use it to pass out to the regions in benefits that they can pretend arent benefits.Im pretty convinced housing is going to take the brunt in the UK of the deflation.

When you look at the method of credit creation as it's reported these days(a lot more honestly than in the past),credit gets created when the loan is made.If that loan doesn't get repaid then the bank takes a hit to it's capital buffers,which is fine if the asset underpinning the loan can be sold  to cover the loss.

People like your colleague are a disaster waiting to hit the banking system.Especially if they hit it en masse at the same time in a round of non payment,which,let's be frankly honest,history shows will likely happen.

There are a lot of bad loans written in the UK in the last 20 years but those on residential property/CRE  expose the UK unnecessairly to the perils of marginal prices in real estate markets..

Wolf nails it in that clip in so many ways re people not realising that their home value gains are merely currency devaluing-as I explained to my wife's family when they kept claiming SA property only goes one way to which I tried to point out that in dollar terms it goes both ways.

It says a lot that all the inflation has occurred in areas that aren't included in CPI/CPIH/RPI and the geniuses at the BoE think they've mastered inflation .......

[sancho panza]

34 minutes ago, Yellow_Reduced_Sticker said:

I'm doing the reseach on this as where i'm moving to, i DON'T want a landline but need internet via my PC as i have a phone line of my PC (ONLY £3.99 p/mouth 100miuntes its for biz use only) As i moving out to the sticks i can't get Virgin Media or Hyperoptic. anyways as the link below states your only saving maybe a fiver or so a month...

https://www.broadbandchoices.co.uk/ask-our-expert/without-landline

 

My friend is watching netflix etc via his mobile,internet via his mobile.All depends on signal strenght,but he's saving £30 per month.I'm not saying it's a replacement for landline broadband jsut that it's an option currently for more lighter users.

[janch]

47 minutes ago, sancho panza said:

My friend is watching netflix etc via his mobile,internet via his mobile.All depends on signal strenght,but he's saving £30 per month.I'm not saying it's a replacement for landline broadband jsut that it's an option currently for more lighter users.

I don't have a landline either.  I have free-view TV and a dongle for internet for my PC.  It's much easier if you move house not to have a landline with the hassle of informing BT etc of a move.  I'd be interested to see if landlines do go out of favour especially with younger renters/students etc who move home a lot and use their mobiles for just about everything.  It's cheaper too as SP says which is an added bonus for a cheapskate like me.

[janch]

Imperial Brands - is it just me or others here but i get a guilt complex if i was to invest into a company that is basically KILLING People? OR i'm i WRONG?

I'm in two minds about it too.  Smoking killed my father at the age of 49 so he never lived to see his pension.  On the other hand if I made some money out of the tobacco companies it would be a sort of revenge and also recouping some of the money he spent on fags.

I think I've missed the boat on both Imperial and BAT though unless they both go down a bit........

[deathfunk]

Nickel is on its way up which means HZM is perking up. 2.15 to buy. Criminally undervalued. This should be sexual to 15p at least.

[Loki]

37 minutes ago, billfunk said:

Nickel is on its way up which means HZM is perking up. 2.15 to buy. Criminally undervalued. This should be sexual to 15p at least.

Any idea why is nickel is rising? Tempted to have a flutter (Which it is, let's be honest).  Can't do any worse than any of my other 'punts'

[Cosmic]

2 hours ago, Yellow_Reduced_Sticker said:

Imperial Brands - is it just me or others here but i get a guilt complex if i was to invest into a company that is basically KILLING People? OR i'm i WRONG?

Free will. Imperial are not there forcing people to smoke cigarettes until they die.

[spygirl]

3 hours ago, Yellow_Reduced_Sticker said:

I'm doing the reseach on this as where i'm moving to, i DON'T want a landline but need internet via my PC as i have a phone line of my PC (ONLY £3.99 p/mouth 100miuntes its for biz use only) As i moving out to the sticks i can't get Virgin Media or Hyperoptic. anyways as the link below states your only saving maybe a fiver or so a month...

h

You dont need a landline. Few people do.

You *do* need a conductor to the roadside box, which goes back to the exchange.

 

[Cosmic]

14 minutes ago, spygirl said:

You dont need a landline. Few people do.

You *do* need a conductor to the roadside box, which goes back to the exchange.

 

This. I know in some countries they provide such lines really cheaply. It annoys me we still have to pay for fully fledged land lines (though most 'normal' users will have a bundle so don't notice it) just to run FTTC on top.

Don't forget people that businesses will always need fixed lines (internet connectivity, not PSTN), 4/5G may factor in as a backup but only to a leased line with an SLA, OpenReach have a bit base there. I can't see any drop off in demand, especially as ISDN is being dropped in favour of VoIP which means quality bandwidth is a must for businesses of all sizes.

[Dogtania]

@Yellow_Reduced_Sticker I'm also in two minds but the profit mind has over ruled for now.  Imperial don't seem to be peddling death sticks to Africa and the like much though.  I just started monthly investing a very small amount into BAE which are probably equally abhorront some would say.  I guess some miners and the like are not massively better either!?

anyway I think going forward it's becoming a lot more fashionable for companies to play and use their green creditentials etc. As well as more focus on social giving.  Breewdog a company I was lucky to get at the start and subsequently cash out of some time ago I believe have lauded their commitment to allocating a set amount of their take to charity.  Whilst they probably pushed their social good and virtue signalled etc.  I said their just slightly above the curve/ on the zeitgeist and read this as the coming norm IMO

[deathfunk]

38 minutes ago, Loki said:

Any idea why is nickel is rising? Tempted to have a flutter (Which it is, let's be honest).  Can't do any worse than any of my other 'punts'

Nickel inventories are depleting and current production is not able to meet demand. There is a chart somewhere showing that a serious shortage will have developed by 2021-22. Chartwise HZM has recently formed a nice round double bottom and curled up.

[UnconventionalWisdom]

3 hours ago, sancho panza said:

 

It says a lot that all the inflation has occurred in areas that aren't included in CPI/CPIH/RPI and the geniuses at the BoE think they've mastered inflation .......

They know what they are doing. It just sucks that they have chosen to rig the market to make them look like geniuses. Long term it all goes wrong as you actually have run away inflation like we have without it hitting the economy or causing societal change (cough trump, Brexit, cough cough). 

How long they get away with it is anyone's guess.

3 hours ago, sancho panza said:

My friend is watching netflix etc via his mobile,internet via his mobile.All depends on signal strenght,but he's saving £30 per month.I'm not saying it's a replacement for landline broadband jsut that it's an option currently for more lighter users.

I'll be doing the same when my contract is over. I dont do anything that intense so it'll be a case of letting things buffer if it's slow. 

[Loki]

32 minutes ago, billfunk said:

Nickel inventories are depleting and current production is not able to meet demand. There is a chart somewhere showing that a serious shortage will have developed by 2021-22. Chartwise HZM has recently formed a nice round double bottom and curled up.

Nice, thanks. I stuck a small amount on, let's see what happens.