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DurhamBorn

Credit deflation and the reflation cycle to come.

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1 minute ago, dgul said:

The issue with bonds is that many large investors use them as a cash equivalent for safe-haven times; when you've got a $billion to keep safe you've not got many choices.  When you've got more manageable numbers to work with then keeping in a tin becomes a possibility.   

Ta.  I assume the graft (and it's always there somewhere) is that the initial purchasers make the killing, buying near par and the selling on at a premium, or just have better access to the placements than us to buy near par at issue and hold?  The very few placements my brokers offer (and they are corporate bonds only) are mostly in dubious companies, not your household names.  

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Posted (edited)
17 minutes ago, DurhamBorn said:

Id be interested in a list of US stocks you pick up on

OK, very very early days but I was clearing out some old bookmarks and found this one (the meat is towards the end):

https://www.simplysafedividends.com/intelligent-income/posts/3-high-yield-dividend-stocks-july-2018

I need to study it a lot more but charted a few of the stocks like LEG, VZ, HTA, etc. 

Something happened in 2016 which caused the S&P to leave these stocks behind.  Some have fallen recently and some technicals say this is not over.

Obviously need to do proper due diligence on the financials, etc but enough to get me interested.  

But if nothing else, it screams at me personally (DYOR) to stay away from an S&P tracker!

Edited by Harley

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3 hours ago, DurhamBorn said:

I think the macro cycle points to UK assets being undervalued in $ terms.The extended time sterling has been well below trend would point to a big uplift in UK asset prices (outside of housing) at some point.It could be a case of we go down 20% while the Nasdaq goes down 70% of course.I road mapped out a lot of reflation stocks about 3 years ago and expected them to bottom out during a crash with PE ratios between 6 and 9.A large part of them are already in that range,so they have crashed,but hidden by the overall index holding up.The key question of course is are profits going to bottom this year and then start to turn as inflation creeps higher,or is there another down draft that would mean another 20%+ off.

20% off before an upturn isn't a problem to buy and hold. It's only a problem if the 20% off makes them go bust!

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10 hours ago, Harley said:

I'm not keen on bond funds versus holding actual bonds (in a ladder).  So I yet again (today) looked at the bonds (corporates, gilts, pibs, etc) available in the UK market.  The redemption yields were poor in the past, and with current higher prices, are even worse.  So a say 5% bond has a redemption yield of say 1%.  My understanding is that if I bought it now (well above par), after allowing for the loss in value on redemption it would only yield 1%.  Capital protection maybe, but naff all return.  I might as well put the money in a tin!  Or am I reading this stuff incorrectly? 

That all feels right but you'd be surprised. The portfolio I follow allocates a % to LT Gilts (30Y+). I know that these will be slaughtered when inflation takes off and that is why I tilt towards equities. However, I have had a 10% capital return on these bonds over the last 2 years (prices have gone up 10%) in addition to interest payments of around 3%.

As inflation takes off, and the prices of these babies fall dramatically, I will quickly start tilting back into LT Gilts to lock in guaranteed high returns.

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Posted (edited)
1 hour ago, CVG said:

......As inflation takes off, and the prices of these babies fall dramatically, I will quickly start tilting back into LT Gilts to lock in guaranteed high returns.

Ta.  Sounds like I should keep under review but wait for now for some price falls.

Edited by Harley

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https://www.google.com/amp/s/amp.theguardian.com/business/2019/jun/12/pendragon-warns-of-annual-loss-as-it-slashes-prices-of-used-cars

Pendragon, Britain's biggest car dealer, lost 23% on the stock market today after warning of "significant" losses.

I know many others here have much more sophisticated ways of tracking leads and lags, but I've always thought of care sales as a great indicator of the wider economy.

New car sales down 4.6% for the year in May.

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Posted (edited)
22 minutes ago, Durabo said:

....I've always thought of care sales as a great indicator of the wider economy.....

Indeed.  Normal people got no money.  Not now, nor the future which TPTB have also spent.  A few more raids on the last few prudent people to give to others to spend and that'll be it.  It's all hand to mouth rentier stuff now.  I adjusted my portfolio back in March last year accordingly.

Edited by Harley

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On 10/06/2019 at 22:02, ashestoashes said:

any views on the future for Centrica ? some say 85p target others uninvestable, I'm thinking to stay invested for the long term, but there seems to be a lot of unhappy investors and employees.

It's either going bust or it's time to buy if there's a lot of people saying sell.

In terms of going bust you need a decent size accounting or derivatives scandal.

My take is that it's a business that's been paying down debt for a few years(good thing),keeping margins up as best as possible despite seeing lots of customers leave for more marginal providers(who are going bust)-50/50 call,has a lot of revenues and areas of growth.

I could be wrong,but I suspect they'll be in business in 4 years time.Share price,who knows?

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On 11/06/2019 at 09:02, DurhamBorn said:

Iv got it at 3.5% of my portfolio and happy to hold.If it went down so be it.They have legacy issues and need to off load the nuclear power stake for a starter.However they are also world leaders in distributed energy and the software that goes with it.There is a good chance block chain will play a huge role in electric vehicle charging etc.They have been slowly tidying up the balance sheet,but havent had any credit for that.I remember buying a couple of companies back when Clinton was president.All the brokers said they were uninvestable,BAT Tobacco at about £5 and Imperial at around £3.30.They paid my house off + a lot extra.I invested £14k and re-invested the divis.The main thing is surviving the end of this cycle and making it to the next.We can know who might not make it,so need to keep diversified.

An excellent assessment DB.

 

That word univestable is such an 'intsitutaional' word.Saem as when they use use investable in 07 for banks or techies back in the noughties.

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On 11/06/2019 at 08:24, ninjaborrower said:

If QE and ZIRP are praticed on a global scale by everyone and not just a rogue state like germany in the 20s they can keep things going for decades ?

 And with the push for a cashless society the effects of these policies can go unnoticed by the population as a whole ? 

The problem is that you're judging QE/ZIRP against a background of declining money velocity.The instability that is created by inflation in terms of investment,spending and long term planning would appear negligible to most onlookers who've only ever known falling govt bond yields..

History shows us that Germany wasn't the only hyperinflation and also that even mild inflation running at 5% is incredibly disruptive-not least because as @Harley will point out,they've been mismeasuring inflation for decades.

Mismeasuring inflation for political endsworks fine while there's food on people's tables.

23 hours ago, Majorpain said:

Lega is busy floating ideas for the new euro replacement  minibot currency, the shots across the ECB's bow are getting very close.

 

Talking of inflation.I see this Italian move-I think it will happen-as the death of the eurozone and possibly to the re emergence of monetary inflation as an existential threat to the world order,leveraged as they are.

15 hours ago, Harley said:

OK, very very early days but I was clearing out some old bookmarks and found this one (the meat is towards the end):

https://www.simplysafedividends.com/intelligent-income/posts/3-high-yield-dividend-stocks-july-2018

I need to study it a lot more but charted a few of the stocks like LEG, VZ, HTA, etc. 

Something happened in 2016 which caused the S&P to leave these stocks behind.  Some have fallen recently and some technicals say this is not over.

Obviously need to do proper due diligence on the financials, etc but enough to get me interested.  

But if nothing else, it screams at me personally (DYOR) to stay away from an S&P tracker!

Interesting that there's a few on there that feature in my longterm portfolio given to Mrs P in the event of an unfortunate boating accident.I'm still very much dollar centric,until there's a better option

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5 hours ago, CVG said:

That all feels right but you'd be surprised. The portfolio I follow allocates a % to LT Gilts (30Y+). I know that these will be slaughtered when inflation takes off and that is why I tilt towards equities. However, I have had a 10% capital return on these bonds over the last 2 years (prices have gone up 10%) in addition to interest payments of around 3%.

As inflation takes off, and the prices of these babies fall dramatically, I will quickly start tilting back into LT Gilts to lock in guaranteed high returns.

You can always buy linkers.

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58 minutes ago, Durabo said:

https://www.google.com/amp/s/amp.theguardian.com/business/2019/jun/12/pendragon-warns-of-annual-loss-as-it-slashes-prices-of-used-cars

Pendragon, Britain's biggest car dealer, lost 23% on the stock market today after warning of "significant" losses.

I know many others here have much more sophisticated ways of tracking leads and lags, but I've always thought of care sales as a great indicator of the wider economy.

New car sales down 4.6% for the year in May.

Was about to post this.Intersting development and of signifacne when you look at their demographic.

And this warning is after 2018 when they sold some new car dealerships to focus on used car sales

https://www.theguardian.com/business/2018/feb/13/uk-car-dealer-used-vehicles-pendragon-evans-halshaw-stratstone

Britain’s biggest car dealer is switching its focus to the used market, after a slump in sales of new vehicles dragged down its annual profits by a fifth.

Pendragon, which trades under the Evans Halshaw and Stratstone brands and sells all the main marques, said profit before tax fell to £60.4m last year from £75.4m in 2016.

Used car revenues rose 15.8% to £2.1bn while new car revenues fell 8.9% to £1.8bn. Along with other dealers and carmakers, Pendragon sold luxury cars at big discounts to clear excess stock in the summer.

 

 

https://www.theguardian.com/business/2019/jun/12/pendragon-warns-of-annual-loss-as-it-slashes-prices-of-used-cars

City analysts had expected the company to make a profit of almost £35m this year. Last year it posted a pre-tax loss of £53.2m after a £92m writedown. Analysts at Jefferies are forecasting a £6.9m loss before tax for 2019, having previously predicted a profit of £31.4m.

Pendragon, which has 32 stores that only sell used cars and 177 franchised dealerships, said there were “significant” declines in prices in the used-car market, with dealers having to discount heavily to shift excess stock. The firm was left with used cars worth £458m at the end of 2018, up from £372m a year earlier. Prices are also being slashed to enable carmakers to hit volume targets.

Pendragon wants to pull out of the US to focus on the UK used-car market, which it still sees as an “exciting opportunity” despite the current problems. It announced the sale of two dealerships in California for £60m in May.

The firm’s new chief executive, Mark Herbert, is carrying out a full review of its businesses that could lead to the breakup of the company and will announce the outcome in September.

Herbert took over from Trevor Finn on 1 April. Finn retired unexpectedly after almost 30 years at the helm.

 

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On 10/06/2019 at 21:02, ashestoashes said:

any views on the future for Centrica ? some say 85p target others uninvestable, I'm thinking to stay invested for the long term, but there seems to be a lot of unhappy investors and employees.

Think this has been mentioned on here before but I can see someone making an offer for them soon - maybe a big oil co?

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1 hour ago, sancho panza said:

The firm was left with used cars worth £458m at the end of 2018, up from £372m a year earlier. Prices are also being slashed to enable carmakers to hit volume targets

Stock is valued at the lower of cost and net realisable value (realistic market price) with the write down going to the P&L.  £458m.  Oh dear?

1 hour ago, sancho panza said:

....an unfortunate boating accident...

You must lead an interesting life.  Maybe less talk about Italian banks would help!

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2 hours ago, reformed nice guy said:

What sort of changes did you broadly make?

Less stocks that depend on consumer discretionary spending? 

Essentially so, so not rocket science.  The twist was I redefined the industry categories more along consumer facing versus business facing lines, and then essential versus non-essential spending.  I also looked at money flows from consumer fronting business through their supply chains.  Finally, I researched which sectors have typically done well (or at least not as bad!) during times of inflation, stagflation, etc and why.  People are tapped out.  Little savings, debt levels are back near their peaks, wages have been going nowhere for decades, and some form of benefit is now an essential part of many families' finances.  The real extent of this dismal picture has been covered up by the LIbLabCon nexus and their agents but they are running out of road.  It's even getting hard to get the data anymore from the ONS, etc.  The last lot of wealth and income statistics were bad.  Most displays of wealth today are based on debt (pretty much run out) and/or living a rented life (e.g. cars).  For the rest, it's the same, without even the displays of wealth.  That makes for a volatile populace whom one minute may fall in line and then kick off the next.  Sure, some are OK (when excluding the fake housing asset) but very few and no doubt the unconnected will be stripped bare too in one last gasp to keep things going for just that little bit longer.  So yes, another allocation change to hopefully further protect capital, although the way Parliament has been ripping up the rule book over Brexit shows the fragility of the current rules, principles, and behaviours.

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1 hour ago, Cattle Prod said:

Unhappy investors suits me fine as a contrarian, and you can see it in the price. It's oversold on daily, weekly and monthly timescales (that said, I don't see signs of it bottoming yet). Thanks for the discount guys, I topped up my holding this week. Divi is over 12% now, but I've become less interested in that now, than the growth potential. It looks ridiculously cheap to me. I can only think of a bottom of cycle driving it down, along with the spectre of Corbyn. Once thats removed, it'll rally hard.

I look at Mexico, where a Corbyn is in power (AMLO). He's learning quickly about the power of the bond markets. After the Pemex downgrade, things are about to get very tough for him, and his free hand has been severely curtailed. There will be no 8bn refinery in his home town for starters. I don't think Corbyn will be allowed nationalise anything, even if he gets in. He'll have to sell gilts to do so, and he might get a nasty surprise about what Mr. Bond Market thinks about expropriation and a cavalier attitude to property rights.

Lastly, I got a smart meter in. Turns out its costing me about £20 a week for elec and gas, I had no idea it was that low. It's a ridiculously small portion of my take home pay. I appreciate it's alot more for a pensioner, and I have no issue with helping them out. But for the vast majority of people, it's less than cigarettes/booze/sweets/car payment blah blah blah ...for heating and power??? I can't be the only one who grew up in a cold house, do people forget this? Bottom line - we're going to have to pay more, and CNA will be priced like a normal company again. This "big 6 profiteering" theme is nonsense and needs to be knocked on the head before they're out of business. So what if they made 180m profit - what % of revenue was that? Revenue was 30bn!! Less than 1%. And people rage into their massively marked up Apple products about the Big 6.

People need to, and will, wake the f**k up about whats really important to spend money on. If I had to pay 10% more for my energy I wouldn't miss it, and it'll go straight onto Centricas bottom line. And then maybe they can invest and get on with their business.

 

Totally agree. Bit of a falling knife at the moment though, tough to know when to pile in.

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18 hours ago, Harley said:

I'm not keen on bond funds versus holding actual bonds (in a ladder).  So I yet again (today) looked at the bonds (corporates, gilts, pibs, etc) available in the UK market.  The redemption yields were poor in the past, and with current higher prices, are even worse.  So a say 5% bond has a redemption yield of say 1%.  My understanding is that if I bought it now (well above par), after allowing for the loss in value on redemption it would only yield 1%.  Capital protection maybe, but naff all return.  I might as well put the money in a tin!  Or am I reading this stuff incorrectly? 

Thanks Harley, but on reflection perhaps bonds are not what i'm looking for after all, i'm thinking the expected inflation figures in Q3(?) will only mean having to sell the bonds in near future and then having to wait (while sitting in lots of cash again) for the equity buying opportunities to materialise after markets slump.

I was also thinking of alternative might be to buy commodities, e.g. gold or silver (I already hold a sizeable allocation for long term) – which would in theory (as reflation cycle plays out) increase in value as equity markets fell - however I understand that the probable trend line for gold/silver is not up-up-up over the next 2 years, and so real risk of having to sell gold at a loss to buy 'cheap' equity opportunity.

So perhaps im looking for the impossible (Unicorn)?... to find a home for my sipp cash that offers a minimum downside risk but with a potential for growth during early stages of next cycle, approx. 1-2 years if it were to take that long for stock markets to correct.

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Posted (edited)
3 hours ago, sancho panza said:

You can always buy linkers.

hi SP, I own some US TIPS... my understanding of these inflation linked bonds is that inflation is good thing - however lower interest rates is bad. So if aim is to protect capital value, timing when to sell bond is an issue.

Please correct me if i'm incorrect about this as my plan will be to sell before October because its anticipated that US rates cuts may be announced then.

Not looking for financial advise of course!... just interested in learning. 

Edited by JMD

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1 hour ago, Cattle Prod said:

Unhappy investors suits me fine as a contrarian, and you can see it in the price. It's oversold on daily, weekly and monthly timescales (that said, I don't see signs of it bottoming yet). Thanks for the discount guys, I topped up my holding this week. Divi is over 12% now, but I've become less interested in that now, than the growth potential. It looks ridiculously cheap to me. I can only think of a bottom of cycle driving it down, along with the spectre of Corbyn. Once thats removed, it'll rally hard.

I look at Mexico, where a Corbyn is in power (AMLO). He's learning quickly about the power of the bond markets. After the Pemex downgrade, things are about to get very tough for him, and his free hand has been severely curtailed. There will be no 8bn refinery in his home town for starters. I don't think Corbyn will be allowed nationalise anything, even if he gets in. He'll have to sell gilts to do so, and he might get a nasty surprise about what Mr. Bond Market thinks about expropriation and a cavalier attitude to property rights.

Lastly, I got a smart meter in. Turns out its costing me about £20 a week for elec and gas, I had no idea it was that low. It's a ridiculously small portion of my take home pay. I appreciate it's alot more for a pensioner, and I have no issue with helping them out. But for the vast majority of people, it's less than cigarettes/booze/sweets/car payment blah blah blah ...for heating and power??? I can't be the only one who grew up in a cold house, do people forget this? Bottom line - we're going to have to pay more, and CNA will be priced like a normal company again. This "big 6 profiteering" theme is nonsense and needs to be knocked on the head before they're out of business. So what if they made 180m profit - what % of revenue was that? Revenue was 30bn!! Less than 1%. And people rage into their massively marked up Apple products about the Big 6.

People need to, and will, wake the f**k up about whats really important to spend money on. If I had to pay 10% more for my energy I wouldn't miss it, and it'll go straight onto Centricas bottom line. And then maybe they can invest and get on with their business.

 

I agree Cattle Prod, fuel prices can only go one way. But all the while we have our useless media hyping-up so called 'fuel poverty' amongst other silly distraction stories, the latest being 'sanitary ware poverty'... this is true by the way!  

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3 hours ago, stockton said:

Think this has been mentioned on here before but I can see someone making an offer for them soon - maybe a big oil co?

They need to offload the nuclear stake first i think.Its a tricky sale but if they could get £1.5 billion for it they could cut debt in half,and then be able to grow all the future facing sides they have.Its a very difficult time to offload it of course as the likely buyer would be China and thats a difficult sell on the politics at the moment.China would be happy to over pay as a way into Europe for its nuclear companies.Really tough deflation cycles on companies like them,but if they can get rid of nuclear they should have a nice cycle,if they can avoid been bought out and avoid going under.

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Posted (edited)
1 hour ago, JMD said:

So perhaps im looking for the impossible (Unicorn)?

Me too.  I have too much in cash but won't buy the other asset classes (up to their target allocations) until I get the signals and don't really want to over-allocate to say gold only to then move that into equities.  Tough one but at least it looks like things are beginning to move so hopefully soon.

Edited by Harley

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1 hour ago, JMD said:

latest being 'sanitary ware poverty'... this is true by the way!  

Jesus. This is why I stopped listening tp the mainstream media. Next up: 'sky sports poverty'

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