Contrarian Chat

[GrahamPlatt]

On this thread in mid March I referenced the CNN Greed indicator which had touched 1 intra-day. At the bottom of the page (linked below) you can see the past three years history. Currently 78.

https://money.cnn.com/data/fear-and-greed/

Equities valuations feel more exposed to a pull back; and I gradient my weekly equity index purchases lower as this indicator rises. Keeping the excess money as dry powder for a. equity weakness b. reduction of leverage or c. picking up an investment property to take advantage of the stamp duty relief.

Undecided at the moment - leaning towards an investment property as houses prices, in my view, seem poised to do very well in a low mortgage rate + high money supply world - resulting in real-asset price inflation.

That seems to be relating the conditions over on the US markets. Different picture here I'd think.

[johnhemming]

I think the US markets are quite overvalued in tech and would avoid that more generally although there might be some exceptions although my guess is that all are overvalued (including things like Tesla).

Hence the CNN indicator is probably right.

I tend to concentrate on stocks that are listed in the UK (which may be international businesses or businesses primarily outside the UK). That is because I can get better information and I don't think I can practically monitor global stock markets.

I think there are a number of macro risks in the UK (as well as globally).

a) A second recession following the initial covid recession and recovery (the W shaped recovery).
b) Inflation
c) The second recession causing a material drop in property prices.
d) brexit

I am currently long in UK banks. The risk against that is a material drop in property prices and a general failure of the UK economy.

I would not buy property for investment reasons at the moment - particularly not in the centre of big cities. I think you are right, however, that QE could feed into asset values, but I am expecting property in aggregate to face a small 2-5% reduction in value over the next year notwithstanding QE.

Whether the government stops the covid rain dance is also a material uncertainty.

[Walkeia]

Yes, i think it's true this indicator reflects the US mainly. My main holding is VWRL hence I follow it quite closely.

A risk not mentioned John, nor did I see the headlines when posting this morning, is potential changes in tax policy. I take back the property investment leaning and will wait and see what the next budget holds. The changes muted would hit me; but the money has to come from somewhere and we're close to the limits on income tax imho. Though if we're going to close loopholes - including farmland and forestry in IHT I would welcome - always felt its exemption was unfair and certainly forestry features in some IHT planning services I have seen.

I guess at least Rishi had the decency to treat us to a few meals out before this

[johnhemming]

The first issue from a fiscal perspective is what the state of the economy is as we come out of the rain dance. That will impact both on spending and taxation.

[richfool]

If I follow the theme recommended in this Peter Schiff interview, then it would be dump the dollar and buy gold.

I have some gold, a gold miner, so perhaps I will top up, or add another, if there's a dip.

https://youtu.be/SlS-zY2nJow

[johnhemming]

I think the first sign of this is likely to be in exchange rates. That being the case perhaps the Swedish Krona would be a good starting position. If the monetary expansion is limited to inflating capital asset values then it should not all fall apart. The fact that most western countries are in a similar mess makes the situation a bit easier.

However, there clearly is potentially an inflationary risk with MMT.

[Charlottesquare]

I think the first sign of this is likely to be in exchange rates. That being the case perhaps the Swedish Krona would be a good starting position. If the monetary expansion is limited to inflating capital asset values then it should not all fall apart. The fact that most western countries are in a similar mess makes the situation a bit easier.

However, there clearly is potentially an inflationary risk with MMT.

For Covid yes they are in a similar mess ,for Brexit there is no western country in the potential same mess as the UK.

As I think Sterling is possibly likely to suffer relative to other currencies on a No Deal (Thin Deal) end to transition I buy shares/ITs whose earnings are underpinned by these other currencies,on the expectation that both dividends and values will likely be boosted if Sterling falters.

[johnhemming]

Some interesting news in from Redde Northgate
https://www.investegate.co.uk/redde-nor ... 0000PD33F/

Redde Northgate plc (LSE:REDD), the integrated mobility solutions and automotive services provider, today announces the acquisition, by a wholly owned subsidiary, of certain businesses and certain assets of Nationwide Accident Repair Services (“Nationwide”) by way of a purchase from administrators, for an initial cash consideration of up to £11m, plus a deferred consideration of up to £5m conditional on retention of certain trade business on satisfactory terms.

Sounds like a bit of pain for Carlyle who took NARS private (off AIM) about 5 years ago.

I held both REDD and NTG prior to the merger (which I thought was sensible). I also continue to hold these through the drop and bought some more a few days ago on the basis of the strong valuations of second hand vans (which is confirmed in the statement).

What Pandemics do is to discourage people from public transport and increase the use of smaller vehicles for a while. Hence I expect this business to be maintained once the rain dance comes to an end and even during it.

If I remember rightly the management targets start at £3.50. (the price today popped up over £2).

[dspp]

I went in to Sylvania SLP earlier this year and then out when I thought platinum prices would go down, but back in now as I think the platinum price is probably reasonably stable and they seem quite good on forecast PE.

Depends on how long one is considering holding.

45% of platinum use is in catalytic converters and about 10% in petrochem catalysts, so it is quite highly exposed to any downturn in either oil & gas use and/or dino-juice (ICE) vehicles.

regards, dspp

[johnhemming]

it is quite highly exposed to any downturn in either oil & gas use and/or dino-juice (ICE) vehicles.

That's true.

[dspp]

Those of you pondering banks may be interested in this BoE paper

"We find that for domestic banks and building societies already close to insolvency the association is favourable, suggesting that risk decreases (increases) with more (less) competition. For foreign-owned banks and for relatively healthy building societies farther from insolvency we find the opposite, indicating that risk increases (decreases) with more (less) competition. "

https://www.bankofengland.co.uk/working ... licymaking

- dspp

[Walkeia]

Hi,

I bought Thursday afternoon and decided to add again Friday morning. The specifics of any company’s ability to weather the virus impact is beyond me so I bought VEUR and VWRL. The reasons I decided to are:

1. I don’t know anyone who doesn’t think that it will get worse before it gets better. I agree the virus infection numbers and sadly deaths etc will go higher but the sell off has been dramatic so I feel some of this further negative news is in the price.

2. I believe the peak to trough declines in ‘08 and dotcom crash were approx 50% in the equity indices. We were getting to the mid 20% declines which triggered me to react.

3. I’m in my early 30s; so can take a very long term view on these purchases and continue to look to add. A V-shaped recovery is actually not in my long term interests as I am still in the asset acquisition stage of my life.

4. Unlike recent market corrections - there isn’t a direct business sector to blame such as the bankers for ‘08 and the tech companies for the 2000 (I would blame bankers for dotcom too). As such I don’t foresee huge changes to the business environment or anti-wealth / business policies. If anything I think the opposite - the public will have sympathy for help for some firms in trouble if required due to the virus.

5. I watch the CNN greed index as I find it a fun tool. Since late 19 it has been flashing extreme greed even posting 98 (the measure goes from 0-100). On Thursday afternoon it was showing 1 for an hour which made me smile and think I had to add some stocks.

https://money.cnn.com/data/fear-and-greed/

6. Lastly, and I feel most importantly, is the policies taken by central banks and Western Governments. Listening to the ECB Thursday - they are the last major CB to react and it’s the same across the board. Interest rates are going negative or close to zero in the EU, US and U.K. and QE is increased in the EU and arguably started yesterday in the US (1.5 trillion of operations to help the functioning of the market). The CB policies are creating the groundwork for governments to spend and finally we’re seeing some reaction. Netherlands said yesterday has capacity to spend up to 90bn, Italy 25bn, US, UK, Germany, France, Spain etc all coming. This is near term - but monetary policy impacts over an 9-18 month period so if the virus passes by Autumn - will see the U.K. and US reversing their interest rate cuts? I think not as hikes have been much harder and slower since the GFC.

So my view is I don’t know the winners or losers from this and I don’t know how long it’s going to last. When the virus passes, and it will, what I feel I can say with more confidence is assets with positive real returns such as equities, housing and REITs with inflation linked contracts can do very well due to the policies taken in the past month. The alternative is to suffer a real loss holding cash in the bank with no prospect of better interest rates for years.

Greed will come back; it always does.... according to CNN it already has by 4 points

All the best,

https://money.cnn.com/data/fear-and-greed/

One measure I mentioned back in March as one of my favourites, because it is so simple, is flashing a warning. I must admit to a sense of unease at market levels here - while I very rarely sell assets perhaps I will pause my regular investments while we consolidate these levels or hope for a pull back to restart

[hiriskpaul]

With the FTSE 100 down today I took the opportunity to sell some February puts at 5600. All other world regions are showing a positive return for the year, but the FTSE is still down 10%. Brexit uncertainity has been a drag on recovery compared to other markets and I am betting on a trade deal being agreed, which should hopefully lift the market. It may not though if we see a significant rise in the pound as well, but implied volatility should drop so hopefully the puts should still do well even if the FTSE does not rise or drops a little.

[Walkeia]

With the FTSE 100 down today I took the opportunity to sell some February puts at 5600. All other world regions are showing a positive return for the year, but the FTSE is still down 10%. Brexit uncertainity has been a drag on recovery compared to other markets and I am betting on a trade deal being agreed, which should hopefully lift the market. It may not though if we see a significant rise in the pound as well, but implied volatility should drop so hopefully the puts should still do well even if the FTSE does not rise or drops a little.

Hi HiRiskPaul,

The is a trading strategy or you are happy to buy @ 5600 should we get there? if we don't you obviously pocket the premium. I have read about using option overlays for personal investment portfolios but never taken the leap.

[hiriskpaul]

With the FTSE 100 down today I took the opportunity to sell some February puts at 5600. All other world regions are showing a positive return for the year, but the FTSE is still down 10%. Brexit uncertainity has been a drag on recovery compared to other markets and I am betting on a trade deal being agreed, which should hopefully lift the market. It may not though if we see a significant rise in the pound as well, but implied volatility should drop so hopefully the puts should still do well even if the FTSE does not rise or drops a little.

Hi HiRiskPaul,

The is a trading strategy or you are happy to buy @ 5600 should we get there? if we don't you obviously pocket the premium. I have read about using option overlays for personal investment portfolios but never taken the leap.

No I would not buy the FTSE 5600 if we got there. This is a short term speculative trading position and I would close out, potentially at a loss, before we got to 5600. I do hold the FTSE 100 as part of a LTBH portfolio, but that is run on an entirely different basis and I do not mix the 2 up.

[spasmodicus]

With the FTSE 100 down today I took the opportunity to sell some February puts at 5600. All other world regions are showing a positive return for the year, but the FTSE is still down 10%. Brexit uncertainity has been a drag on recovery compared to other markets and I am betting on a trade deal being agreed, which should hopefully lift the market. It may not though if we see a significant rise in the pound as well, but implied volatility should drop so hopefully the puts should still do well even if the FTSE does not rise or drops a little.

It depends on what you regard as a worthwhile "world region" to include in a portfolio. As one of the larger global economies, the FTSE has done relatively badly because of Brexit and a lack of global tech companies, when compared with, say, the USA. VWRL, often used a a global benchmark is cap. weighted with more than 50% USA based companies, including Apple Facebook Microsoft Amazon etc. Some emerging markets have fared as badly or worse than the FTSE, including Latin America, Africa and Eastern Europe. Although like VWRL they are not ideal in their weightings, I use ETF proxies LTAM, XMAF and IEER for those regions.



% crashed column is the percentage drop from the average price in February 2020 to the mid March covid crisis low.
% upside represents the percentage price increase remaining, to get back to the mid March 2020 pre crash value

Thus, VWRL is now approximately 7% above its pre crash value, whereas the FTSE100 represented by ISF is still about 16% down. Eastern Europe IEER still has 24% to go to reach its pre crash level. This is probably explained by its heavy loading with Russian oilies and miners. Emerging market regional ETFs such as LTAM and IEER tend to be a lot more volatile than developed markets and represent a "reversion to the mean" opportunity in situations like the one we find ourselves in at the moment. I hold all of the above, except for VWRL, having bought in March/April, to give gains of 20% or more. The question now arises as to how to rebalance my global ETF portfolio. It also begs the question as to whether the boom in USA and China tech companies, which are in large part responsible for VWRL's comparitively good performance, is sustainable in the longer term.

regards
S

[hiriskpaul]

With the FTSE 100 down today I took the opportunity to sell some February puts at 5600. All other world regions are showing a positive return for the year, but the FTSE is still down 10%. Brexit uncertainity has been a drag on recovery compared to other markets and I am betting on a trade deal being agreed, which should hopefully lift the market. It may not though if we see a significant rise in the pound as well, but implied volatility should drop so hopefully the puts should still do well even if the FTSE does not rise or drops a little.

It depends on what you regard as a worthwhile "world region" to include in a portfolio. As one of the larger global economies, the FTSE has done relatively badly because of Brexit and a lack of global tech companies, when compared with, say, the USA. VWRL, often used a a global benchmark is cap. weighted with more than 50% USA based companies, including Apple Facebook Microsoft Amazon etc. Some emerging markets have fared as badly or worse than the FTSE, including Latin America, Africa and Eastern Europe. Although like VWRL they are not ideal in their weightings, I use ETF proxies LTAM, XMAF and IEER for those regions.



% crashed column is the percentage drop from the average price in February 2020 to the mid March covid crisis low.
% upside represents the percentage price increase remaining, to get back to the mid March 2020 pre crash value

Thus, VWRL is now approximately 7% above its pre crash value, whereas the FTSE100 represented by ISF is still about 16% down. Eastern Europe IEER still has 24% to go to reach its pre crash level. This is probably explained by its heavy loading with Russian oilies and miners. Emerging market regional ETFs such as LTAM and IEER tend to be a lot more volatile than developed markets and represent a "reversion to the mean" opportunity in situations like the one we find ourselves in at the moment. I hold all of the above, except for VWRL, having bought in March/April, to give gains of 20% or more. The question now arises as to how to rebalance my global ETF portfolio. It also begs the question as to whether the boom in USA and China tech companies, which are in large part responsible for VWRL's comparitively good performance, is sustainable in the longer term.

regards
S

I was breaking regions up into major* areas, as previously mentioned in this thread when I topped up my global equities portfolio viewtopic.php?f=8&t=22181&start=20#p290566

Here are the YTD TRs as recorded at the time with new YTD TRs as of yesterday:

FTSE 100          -29%      -12%
FTSE 250          -29%      -11%
Canada            -26%        2%
Europe ex UK      -23%        7%
Japan             -20%       11%
Global EM         -19%       12%
Asia pacific      -18%        2%
US                -17%       15%

All world         -15%       11%
World small caps  -23%        9%

So from my perspective, All other world regions are showing a positive return for the year. Addmittedly, I am sure there are minor areas and specific countries that are still underwater for the year, but the UK market is by far the most significant.

*Canada is a relatively small part of the global market, but I invest in it separately as it tends not to be included in other regional ETFs. With the benefit of hindsight, I wished I had not bothered with Canada!