Credit deflation and the reflation cycle to come.

[Bricks & Mortar]

8 hours ago, Democorruptcy said:

Of those four, at the moment only Germany are using the Euro. 

Germanys gdp is about 7 times the size of the other 3 put together, (in usd terms, according to Google search this morning).  Might be the larger part of the income comes from there and not the other places?

[DurhamBorn]

https://www.bbc.co.uk/news/uk-44759150

The seeds of the reflation cycle keep being planted.Energy use will see much higher peaks and troughs over a week and the companies who can skim profits off that will be in a fantastic position.Distributed power will destroy small players who dont have the technology.Those that do will become bid targets for big oil probably.From a sector thats hated now (but the shrewd are slowing buying) to a sector that will be one of the drivers of the next cycle.

 

[Agent ZigZag]

6 minutes ago, DurhamBorn said:

https://www.bbc.co.uk/news/uk-44759150

The seeds of the reflation cycle keep being planted.Energy use will see much higher peaks and troughs over a week and the companies who can skim profits off that will be in a fantastic position.Distributed power will destroy small players who dont have the technology.Those that do will become bid targets for big oil probably.From a sector thats hated now (but the shrewd are slowing buying) to a sector that will be one of the drivers of the next cycle.

 

Do you still see oil down as low as $20 dollars a barrel, as am very weary of adding the oil majors just yet to my share isa. 

[MrXxx]

Whilst we are talking Bonds (and having just read a simple book on shares) I have a question:

Why do investors bother with High Yield/junk bonds?...what I mean is, they are high risk and although unlike shares you are guaranteed to get your principal back at the end (ASSUMING the issuer doesn't go bust) they don't allow you to benefit in the success of a successful company...it seems that not only do you get a lower return % but you don't get the potential of share price increase that you would by buying equities in a company at the same risk level?!...obviously with Gilts and IGs you can be fairly confident that you would get return of your principal hence the lower spread.

[DurhamBorn]

17 minutes ago, Agent ZigZag said:

Do you still see oil down as low as $20 dollars a barrel, as am very weary of adding the oil majors just yet to my share isa. 

In a full scale debt deflation yes.I have no interest in the sector though apart from Centrica,and they will likely sell their production assets (now Spirit Energy) or use them as a cash cow to fund the distributed energy side of the business.Oil and gas will have another cycle of high prices though.

[sancho panza]

1 hour ago, Agent ZigZag said:

Do you still see oil down as low as $20 dollars a barrel, as am very weary of adding the oil majors just yet to my share isa. 

I wouldn't be adding oilies at these levels.

Paul Hodges has some excellent analysis on the oil and plastics markets.His timing isn't great but whose is?

https://www.icis.com/blogs/chemicals-and-the-economy/2018/02/economy-faces-slowdown-oil-commodity-prices-slide/

' Oil and commodity markets long ago lost contact with the real world of supply and demand. Instead, they have been dominated by financial speculation, fuelled by the vast amounts of liquidity pumped out by the central banks. 

Of course, nothing had changed in the outlook for supply/demand, or for the global economy, during the week.  And this simple fact confirms how the speculative cash has come to dominate real-world markets.  The selling was due to nervous traders, who could see prices were challenging a critical “technical” point on the chart:

• Most commodity trading is done in relation to charts, as it is momentum-based
• The 200 day exponential moving average (EMA) is used to chart the trend’s strength
• When the oil price reached the 200-day EMA (red line), many traders got nervous
• And as they began to sell, so others began to follow them as momentum switched

The main sellers were the legal highwaymen, otherwise known as the high-frequency traders.  Their algorithm-based machines do more than half of all daily trading, and simply want a trend to follow, milli-second by milli-second.  As the Financial Times warned in June:

“The stock market has become a battlefield of algorithms, ranging from the simple – ETFs bought by retirees that may invest in the entire market, an industry, a specific factor or even themes like obesity – to the complex, commanded by multi-billion dollar “quantitative” hedge funds staffed by mathematicians, coders and data scientists.”

JP Morgan even estimates that only 10% of all trading is done by “real investors”:

“Passive and quantitative investors now account for about 60% of the US equity asset management industry, up from under 30% a decade ago, and reckons that only roughly 10% of trading is done by traditional, “discretionary” traders, as opposed to systematic rules-based ones.”'

1 hour ago, DurhamBorn said:

https://www.bbc.co.uk/news/uk-44759150

The seeds of the reflation cycle keep being planted.Energy use will see much higher peaks and troughs over a week and the companies who can skim profits off that will be in a fantastic position.Distributed power will destroy small players who dont have the technology.Those that do will become bid targets for big oil probably.From a sector thats hated now (but the shrewd are slowing buying) to a sector that will be one of the drivers of the next cycle.

 

Shell paid £200mn for First Utility late last/early this year.I'm surprised there's been no bid for Centrica at these levels.

1 hour ago, MrXxx said:

Whilst we are talking Bonds (and having just read a simple book on shares) I have a question:

Why do investors bother with High Yield/junk bonds?...what I mean is, they are high risk and although unlike shares you are guaranteed to get your principal back at the end (ASSUMING the issuer doesn't go bust) they don't allow you to benefit in the success of a successful company...it seems that not only do you get a lower return % but you don't get the potential of share price increase that you would by buying equities in a company at the same risk level?!...obviously with Gilts and IGs you can be fairly confident that you would get return of your principal hence the lower spread.

If high yield bonds reach maturity and are repaid at par,then you can win big time.QE has distorted risk pricing and so junk bond yields have been low and not worth the risk vs other safer bonds.

[DurhamBorn]

@sancho panza im praying no bid comes for Centrica.I see it as a £5+ stock in the next cycle,perhaps £7+.A take out now would probably go through at £2.60/£2.80.I hope they offload the nuclear power stake and get debt to about £1 billion.Id also like to see Spirit energy sold,but they might just milk that for cash flow.

I also love the fact most of the market is driven by machines and trackers.They have forced down the prices of many great stocks,and that means higher dividend income for your £.Dividends are real.Tracker and machines will be scorned soon enough.

Iv been busy adding to my PM miners the last few weeks.Im pretty much invested in them now.

 

 

[Agent ZigZag]

Out of curiosity what weighting do board members currently hold their shares in. im approx 50/50 cash shares only because im very cautious by nature  as well as listening to too many opinions that in the end i have been guilty of  sitting on the fence for to long. My shares are largely blue chip that offer good yields. 

On a side note does anybody have an opinion on legal & general, as i am hearing their name come up quite a bit in conversation. Are they a buy?

 

[DurhamBorn]

2 hours ago, Agent ZigZag said:

Out of curiosity what weighting do board members currently hold their shares in. im approx 50/50 cash shares only because im very cautious by nature  as well as listening to too many opinions that in the end i have been guilty of  sitting on the fence for to long. My shares are largely blue chip that offer good yields. 

On a side note does anybody have an opinion on legal & general, as i am hearing their name come up quite a bit in conversation. Are they a buy?

 

I bought Legal and General after the Brexit vote but sold them at £2.53 + a few divis.I like them,but worry what a credit deflation would do to them.I usually have 5% in cash,but i have more at the moment and also treasuries,but iv been upping my PM miners holdings the last two weeks and im fully loaded there now.I bought my last few today.

[Democorruptcy]

Daniel Amerman's stuff has a US slant but is often interesting. His yield curve inversion article:

http://danielamerman.com/va/ccc/YCinvert1.html

[Castlevania]

@sancho panzaWho’d want to buy Centrica? I know Gazprom were interested in the past, but nowadays that would never fly. 

[Barnsey]

3 hours ago, Democorruptcy said:

Daniel Amerman's stuff has a US slant but is often interesting. His yield curve inversion article:

http://danielamerman.com/va/ccc/YCinvert1.html

Very useful thanks for posting, does seem that inflation is really picking up over there so it'll be steady hikes until the crash, if anything to create as much downward IR wiggle room when the time comes.

US consumer debt in May rose by largest amount in 6 months, no doubt to combat inflation.

Courtesy of Oxford Economics, an estimate of the trade war damage on both sides:

[Game_of_Homes]

https://cleantechnica.com/2018/07/09/the-worlds-new-oil-batteries/

[Democorruptcy]

11 hours ago, DurhamBorn said:

@sancho panza im praying no bid comes for Centrica.I see it as a £5+ stock in the next cycle,perhaps £7+.A take out now would probably go through at £2.60/£2.80.I hope they offload the nuclear power stake and get debt to about £1 billion.Id also like to see Spirit energy sold,but they might just milk that for cash flow.

I also love the fact most of the market is driven by machines and trackers.They have forced down the prices of many great stocks,and that means higher dividend income for your £.Dividends are real.Tracker and machines will be scorned soon enough.

Iv been busy adding to my PM miners the last few weeks.Im pretty much invested in them now.

 

 

Spirit Energy in the news http://www.lse.co.uk/ShareNews.asp?shareprice=CNA&code=t5w752cp&headline=Spirit_Energy_to_take_over_operating_North_Sea_Babbage_gas_field

[MrXxx]

Thanks SP, Confirmed my thinking..I think QE (as a temporary tool) has been responsible for a distortion of financial theoretical principles/science...if there is such a thing.

[Majorpain]

Just got an email through about a repossessed beast of a machine, turns out the company bought new premises 2 years ago and filled it full of £800k of financed machinery.  The repayments on all that must have been tasty.  Its a good example IMO of what QE has done to the economy, its way too easy to add capital, over supply the market and the only solution is to take the pain or pump more money in to keep the repayments flowing.  The Banks should not have lent them anywhere near that amount, secured on the machinery or not.

Deflationary collapse is on its way with central banks withdrawing liquidity...

[sancho panza]

14 hours ago, Castlevania said:

@sancho panzaWho’d want to buy Centrica? I know Gazprom were interested in the past, but nowadays that would never fly. 

I think there's a good few producers for whom it would make sense-Middle East/USA vertical integration primarily.

I'd be dissappointed if it happened to be honest,I think it's a business that's evolving well with some excellent growth stories.

[sancho panza]

15 hours ago, Democorruptcy said:

Daniel Amerman's stuff has a US slant but is often interesting. His yield curve inversion article:

http://danielamerman.com/va/ccc/YCinvert1.html

Tha's a super article DM.I particualrly enjoyed the following graph.

21 hours ago, Agent ZigZag said:

Out of curiosity what weighting do board members currently hold their shares in. im approx 50/50 cash shares only because im very cautious by nature  as well as listening to too many opinions that in the end i have been guilty of  sitting on the fence for to long. My shares are largely blue chip that offer good yields. 

On a side note does anybody have an opinion on legal & general, as i am hearing their name come up quite a bit in conversation. Are they a buy?

 

Majority cash.Some long term holds,some PM miners and some speculative positions(bearish but well short of my intended full allotment)

2 hours ago, MrXxx said:

Thanks SP, Confirmed my thinking..I think QE (as a temporary tool) has been responsible for a distortion of financial theoretical principles/science...if there is such a thing.

Those stats from Hodges are really quite damning aren't they?

When you look back at the multiple failings of Western academic economists to both predict the crisis they created and to deal with it, it really is a shattering indictment of the research bias that we've allowed to creep in and dominate one of the msot important aspects of our daily lives.

It says it all that if you want a questioning analysis of where we're going and how we ended up here,you have to read obscure blogs like Shaun Richards or frequent obscure internet forums.

4 minutes ago, Majorpain said:

Just got an email through about a repossessed beast of a machine, turns out the company bought new premises 2 years ago and filled it full of £800k of financed machinery.  The repayments on all that must have been tasty.  Its a good example IMO of what QE has done to the economy, its way too easy to add capital, over supply the market and the only solution is to take the pain or pump more money in to keep the repayments flowing.  The Banks should not have lent them anywhere near that amount, secured on the machinery or not.

Deflationary collapse is on its way with central banks withdrawing liquidity...

People will be amazed about how deep a deflation can go given 99% of people's absolute faith in the primacy of CB's.

The problem is that the banks are levered up to the gills and when the losses come they'll have no choice but to crimp credit creation and well see that once in 80 year event- Fishers Paradox

[Barnsey]

- Harald Malmgren saying today that he sees a financial market crisis in the eurozone emerging this year or next, Italy to go first. A little obvious but he knows his stuff.

- For the first time since the last recession, US Baa corporate bond premiums have risen above 2% on the upward trend, usually a good indicator of a recession either imminent or commencing within a year.

- UK economy "bouncing back" apparently, so looking like an August hike is actually on the cards and not just rhetoric, especially with this soft brexit direction gaining momentum, I still believe this is our "one and done" hike. Unless of course, like the US, they want to build in some downward movement room for next year.

- And this rather ambitious proposal from the IPPR to freeze UK house prices for five years to prevent another financial crisis:

https://www.independent.co.uk/news/business/news/uk-house-prices-latest-freeze-financial-crisis-bank-of-england-ippr-a8439151.html

I have no doubt that this will likely occur AFTER a crash/reset (many believing the current status quo is sustainable, but fact is the bubbles always pop), however the report does allude to the potential for QE to be directed away from speculative assets and into manufacturing growth...

Quote

“We need to move towards a more sustainable growth model, one built on production and investment rather than debt and speculation. To do this, we must break the cycle of ever-rising house prices driving property speculation, crowding out investment in the real economy.”

Ms Blakeley said the UK’s manufacturing and knowledge-based industries should then be built up over the long term, while the significance of the finance sector to the economy is reduced, “including by curbing its worst speculative excesses”.

“We argue for sweeping reforms to taxation of the financial sector, including the introduction of a financial transactions tax on currency trading, combined with an industrial strategy focused on boosting the UK’s exporting sectors,” she added.

 

 

[Castlevania]

1 hour ago, sancho panza said:

I think there's a good few producers for whom it would make sense-Middle East/USA vertical integration primarily.

I'd be dissappointed if it happened to be honest,I think it's a business that's evolving well with some excellent growth stories.

I’d be mixed. A bird in hand.

[MrXxx]

29 minutes ago, Barnsey said:

- Harald Malmgren saying today that he sees a financial market crisis in the eurozone emerging this year or next, Italy to go first. A little obvious but he knows his stuff.

- For the first time since the last recession, US Baa corporate bond premiums have risen above 2% on the upward trend, usually a good indicator of a recession either imminent or commencing within a year.

- UK economy "bouncing back" apparently, so looking like an August hike is actually on the cards and not just rhetoric, especially with this soft brexit direction gaining momentum, I still believe this is our "one and done" hike. Unless of course, like the US, they want to build in some downward movement room for next year.

- And this rather ambitious proposal from the IPPR to freeze UK house prices for five years to prevent another financial crisis:

https://www.independent.co.uk/news/business/news/uk-house-prices-latest-freeze-financial-crisis-bank-of-england-ippr-a8439151.html

I have no doubt that this will likely occur AFTER a crash/reset (many believing the current status quo is sustainable, but fact is the bubbles always pop), however the report does allude to the potential for QE to be directed away from speculative assets and into manufacturing growth...

 

 

Ah, so this is how free market economics works then!...finance industry is UKs dirty little secret that is propagated by the people that we vote for and are meant to represent us.

[sancho panza]

4 minutes ago, MrXxx said:

Ah, so this is how free market economics works then!...finance industry is UKs dirty little secret that is propagated by the people that we vote for and are meant to represent us.

Read about rehypothecation of financial assets.

One of the great miracles of finance and one of the reasons the UK is a financial centre.I'm not a lawyer but apparently our rules on rehypothecation are ahem....chilled.

Default risk meh!!!

https://www.huffingtonpost.co.uk/peter-morgan/rehypothecation-should-be_b_1251967.html?guccounter=1

[sancho panza]

@DurhamBorn

%age on short is normally a poor indicator for future performance.M&S hit a record the other day and the stock has gone up £0.20 since.

The shorts got caned on Morrions and Tesco as well.

Chart isn't screaming cheap just yet...interesting comments with a similar view to you at the bottom.

 

https://www.retailgazette.co.uk/blog/2018/07/short-sellers-betting-newriver-quadruple-confidence-retail-remains-low/

'Retail property giant NewRiver has seen short sellers ramp up their bets against it in recent months, suggesting a share price drop could be imminent.

Major investment funds including Man GLG, Soros Fund Management, CZ Capital, Old Mutual Global Investors and Toscafund Asset Management have all taken significant short positions against the retail estate investment trust.

Since last summer the percentage of NewRiver’s stock out on loan, which means it is being shorted by sellers, has more quadrupled from two per cent to eight per cent, according to data from IHS Markit.

This is in response to growing turmoil in the retail sector, which has seen many property owners lose out thanks to numerous high-profile retailers entering into administration or a CVA process, which allows them to reduce rents significantly and vacate other loss-making stores completely.

Intu has also seen its stock heavily shorted recently, with 6.8 per cent of its stock now out on loan.

Since the news that Intu’s tie-up with Hammerson had been abandoned, the percentage of Hammerson’s stock being shorted dropped from four per cent to nearly zero.

Not all traders are betting against NewRiver though, with Berenberg’s analyst Kai Klose stating: “We think that the defensive profile of NewRiver REIT’s £1.2 billion retail portfolio, with low vacancy rates of three per cent, affordable rents of £12.36/sq ft and a fairly broadly diversified tenant structure, remains attractive.”'

[kibuc]

A bit of anecdotal evidence of what's going on in my neck of woods.

I work for a purely-online fashion retailer. Last year our CEO spoke about plans for future growth, including hiring c.a. 1200 people throughout 2018 which made me chuckle internally. It's July 2018 and, while there have been some recruitment going on, mostly we are going through a period of stealth reductions - all our contractors are being let go successively as their contracts run out without replacement, and there's more than a few of them, in IT in particular. Our weekly newsletter also tells a story of consecutive misses on the sales & revenue forecast, although the YoY numbers show an impressive growth as we cannibalize high-street retailers and expand globally. UK, however, lags behind other areas.

In other news, my wife runs a private psychotherapy practice and we were forced to cut her rates by 25% recently to keep her calendar full. It feels like people are starting to feel the pinch as their disposable income shrinks.

[No Duff (troll)]

On 09/07/2018 at 14:09, Agent ZigZag said:

Out of curiosity what weighting do board members currently hold their shares in. im approx 50/50 cash shares only because im very cautious by nature  as well as listening to too many opinions that in the end i have been guilty of  sitting on the fence for to long. My shares are largely blue chip that offer good yields. 

On a side note does anybody have an opinion on legal & general, as i am hearing their name come up quite a bit in conversation. Are they a buy?

 

I use Harry Brown's Permenant Portfolio allocation for my pensions (my floor) as I'm getting close to retirement and capital preservation is also key given the macro picture, 100% equity for my HYP upside funds, and 100% of everything and anything for my trading account.

I have too much cash in my Floor funds (60% versus 25%) but am averaging into equities and long term bonds over 1 to 2 years.  I already have 25% precious metals in my Floor.  Note cash here includes short term bonds and other low to zero capital risk instruments (e.g. NS&I bonds).

I have about 30% cash in my Upside funds which I'm happy with, picking off bargains as they arise.  Some pruning of my existing holdings ongoing for sectors and counterparty risk.

I have 100% cash in my Trading funds 'cause I'm on hols and the weather's been nice!

Please google the above terms for more detail (e.g. Monevator).