Investing - the stock market and more

[villakram]

On 03/06/2021 at 10:58, CVByrne said:

They didn't cave to Trump, they had the repo crisis and a drop of inflation below 2% which resulted in them cutting interest rates. Basically they did their job which is to anchor inflation at 2%. So when inflation was above 2% from 2017 to 2019 they were increasing rates and then when it dropped to 1.5% they began to cut rates. So believing the Fed will keep rates low because of political pressures in face of rising inflation has no evidence to support it. 

That's before we even get to if President Biden would put pressure on the Fed to ignore it's mandate to do the Presidents bidding. Something (unlike Trump) he probably wouldn't do, especially as his own Treasury Secretary herself said rates would need to rise if inflation kept rising. The President and Congress have powers to spend and unlike in the recent few decades they are exercising that power more now. That is the thing that has changed recently and not Fed ignoring its mandate. 

 

A certain Yellen is now resident in the treasury. Fed independence indeed.

They are no longer married to 2%, but to 2% on average and have openly discussed allowing things to run "hot" for a while to make up for recent mediocre inflation prints. Lots of fun on deck with all sorts trying to decipher the latest Fed statement. Of course, none of this says anything about the real inflation rate, just the Feds specially constructed number. 

[MCU]

Anyone with Vanguard?

Just had a mail saying my usual direct debit has failed this month but not to worry? This has happened twice now over the year. Logged into my account and it says my next payment isn't until next month now. They weren't very clear as to why, I have money in my account. Does this happen quite often?

[stuart_75]

I've signed up to Freetrade after hearing about them on the MOMS podcast. You can buy a fraction of a share if you can't afford a whole 1 share (Disney, Apple, Tesla). Seems a good little app if you want to have a little flutter on the markets.

[Rugeley Villa]

49 minutes ago, MCU said:

Anyone with Vanguard?

Just had a mail saying my usual direct debit has failed this month but not to worry? This has happened twice now over the year. Logged into my account and it says my next payment isn't until next month now. They weren't very clear as to why, I have money in my account. Does this happen quite often?

I’m with them, yes. I’m not aware of any direct debits failing , but I’ll check in a bit.

[sne]

Quote

There's another big risk brewing in China

What's happening: Evergrande, one of China's largest property developers, is in dire straits. It warned this week that it could default on its substantial debts, listing $300 billion in total liabilities, if it can't raise money quickly. Should that happen, the effects would be felt across the country's banking system. The group has also suspended work on some projects as it tries to conserve cash, a move that's poised to hit China's property sector.

Investors are clearly worried. Evergrande's shares in Hong Kong are off 72% this year. That's significantly worse than the 29% plunge suffered by Alibaba (BABA), which has been at the center of the Chinese government's efforts to rein in big tech firms. Hong Kong's Hang Seng index is off 4% year-to-date.

Evergrande's bonds are also under pressure, as is its electric vehicle business, which Bloomberg recently identified as the worst performing stock in the world.

Step back: Debt in China's property sector has been a lingering risk to the country's financial system for some time. And Evergrande is one of China's most heavily indebted developers. It has $37 billion in borrowing due within one year.

Meanwhile, Chinese markets have plunged this year as authorities target tech, education and other private enterprises, wiping $3 trillion off the market value of the country's biggest companies.

https://edition.cnn.com/2021/09/01/investing/premarket-stocks-trading/index.html

Quote

China's house of cards: Evergrande threatens wider real estate market

Evergrande, which accelerated efforts to cut its debts in 2020 after regulators introduced caps, does not have any major offshore bond maturities until early next year but tardy payment of suppliers and interest on loans have brought to a head concerns that have long nagged at investors.

Now, without access to fresh funding, Evergrande cannot pay suppliers, finish projects or raise income, prompting it to hire advisors and warn of default risk. This, along with a buyout, break-up or bailout are the scenarios now being evaluated.

And while analysts have played down comparisons to the 2008 collapse of U.S. investment bank Lehman Brothers, which caused crises at counterparties and ultimately seized up global markets, some investors have similar contagion concerns.

"If as expected Evergrande is defaulting on its debt and goes through a restructuring, I don't see why it would be contained," Michel Lowy of banking and asset management firm SC Lowy, which focuses on distressed and high-yield debt, said.

"There are other developers that are suffering from the same problem of no access to liquidity and have extended themselves too much," Lowy added.

The most immediate concern is of a real estate crash rather than a Lehman-style financial crisis. An Evergrande fire sale could crush prices, causing leveraged developers to blow up and crippling a sector comprising a quarter of China's economy.

"Lehman (was) very different as it went across the financial system, freezing activity," said Patrick Perret-Green, an independent London-based analyst.

"Millions of contracts with multiple counterparties, everyone was trying to work out their exposure," he said. "With Evergrande it depresses the entire real estate sector."

Bank exposure is also wide and a leaked 2020 document, written off as a fabrication by Evergrande but taken seriously by analysts, showed liabilities extending to more than 128 banks and over 121 non-banking institutions.

But data suggests non-performing loans at commercial banks were a manageable 1.76% last quarter, and compared to the United States, China has far greater control over its financial system.

Analysts are increasingly expecting a managed collapse that seeks to protect smaller investors, with around a hundred angrily showing up to Evergrande's headquarters on Tuesday, while bondholders take a haircut.

"We do not believe the government has an incentive to bail out Evergrande (which is a private-owned enterprise)," Nomura analyst Iris Chen said in a note to clients.

"But they will also not actively push Evergrande down and will supervise a more orderly default, if any, in our view."

If Evergrande is to recoup anything, it must first find buyers for its assets, which it has been struggling to do as potential saviours seem content to wait for more distress.

In a stock exchange announcement on Tuesday, Evergrande said it had not been able to complete the disposal of its office building in Hong Kong "within the expected timetable".

https://finance.yahoo.com/news/analysis-chinas-house-cards-evergrande-141204358.html

 

[Genie]

Looks like a good time to buy in China

[HanoiVillan]

The likely collapse of Evergrande is a bigger deal than a developer collapsing in the west would be because many Chinese people invest in real estate rather than equities. They need to find a way not to cause the wider sectoral collapse outlined in the article. 

[Genie]

I read some time ago that a lot of people in China were taking out loans to invest in the stock market as it was booming. They were actually encouraged to do it by the state.

This made it far more dangerous if there was a collapse / correction. 

That was a few years ago, not sure of it’s still the case now.

[Panto_Villan]

2 hours ago, Genie said:

Looks like a good time to buy in China

Potentially not as a foreigner though. I'm not sure if they've openly said it but a lot of analysts seem to think the government would be happy to let the losses fall disproportionately on overseas investors where the opportunity exists.

[Vive_La_Villa]

I saw somewhere that the real inflation rate based on the original calculation in the US is around 13% and the last time it was that high was just before the crash of 2008. I’m not expecting a crash but I do think we’re due 5-10% correction. 

[HanoiVillan]

2 hours ago, Genie said:

I read some time ago that a lot of people in China were taking out loans to invest in the stock market as it was booming. They were actually encouraged to do it by the state.

This made it far more dangerous if there was a collapse / correction. 

That was a few years ago, not sure of it’s still the case now.

There has been a slight increase in investing in equities in China since 2015, but the scale is trivial compared to investing in real estate. In 2010, Chinese GDP was $4,551 per capita; by 2020 it was more than $10,000 per capita, so it had more than doubled. At the end of 2010, the CSI 300 (300 largest Chinese-listed equities) stood at 3,128; by the end of 2020 it was 5,211 (and is only at 4,855 today) so significantly worse than doubling. Worth remembering that:

• Chinese equities mostly have a poor track record;
• Chinese equities are mostly owned by the government or government insiders;
• Chinese equities mostly do not confer voting rights;
• Most growth-oriented Chinese companies prefer to list in Hong Kong or New York

By contrast, real estate is a much more popular investment. Real estate assets have a strong growth track record, so they appeal to investors who think prices will keep rising. They are also have a deeper value, because of the hukou household registration system; a migrant worker from the countryside to a big city cannot send his children to school in that city, or permanently reside in it, but if he can save for years and years and eventually get a deposit on a crummy apartment on the far edges of town he get a household registration for the city and genuinely transform his family's life. This has helped keep real estate highly in demand, and developers have overbuilt garbage apartments in unattractive locations. The parallels to pre-crash Ireland and Spain are there to be seen:

Doesn't *necessarily* mean it's going to be a disaster, but Chinese households are over-exposed to this asset class, so this is a real concern.

[wazzap24]

So, how big is the crash going to be? I mean the proper multi-car, pile-up crash, not the minor bump we’ve seen in the US YTD. 
 

I’m calling a proper, 2008 style wipeout, before Sept. 

[Genie]

17 minutes ago, wazzap24 said:

So, how big is the crash going to be? I mean the proper multi-car, pile-up crash, not the minor bump we’ve seen in the US YTD. 
 

I’m calling a proper, 2008 style wipeout, before Sept. 

Hmmm I don’t see it post covid. Lots of industries (like automotive, tourism, games consoles, other tech held back by chip shortages etc) will clear all the pent up orders which will see them right.

I predict the Uk will bumble song around 0% growth whilst other major nations do slightly better.

[wazzap24]

5 minutes ago, Genie said:

Hmmm I don’t see it post covid. Lots of industries (like automotive, tourism, games consoles, other tech held back by chip shortages etc) will clear all the pent up orders which will see them right.

I predict the Uk will bumble song around 0% growth whilst other major nations do slightly better.

I hope you’re right, but I can’t see a ‘soft landing’. 
 

Inflation hasn’t peaked yet and I’m not convinced the numbers we are being fed are correct as it is. Stagflation is a very real threat. Further pain coming down the road on energy and food prices. 

Supply chains will remain under massive pressure with the labour shortage and ongoing covid situation in China. I work in the automotive industry and there is no sign of improvement, if anything it’s getting worse. 

Interest rate increases won’t stop it, but they will add to the squeeze on disposable income for anyone on a variable rate or coming to the end of their fixed deal mortgage. 

Still a lot of room on the downside for stocks. 

The rest I’ll leave it for now as some of it is a bit tin-foil, but I’m pretty convinced there’s some serious s**t coming for the markets. I think there are issues in the housing markets already, we just aren’t seeing it yet. I’ve also seen some credible stuff on commercial mortgages in the US and it all smells very much like 2008. 
 

[regular_john]

Netflix - what do we think?

 

I'm wary of falling into the 'too big to fail' trap but there's bound to be a massive rebound, surely??

[Mister_a]

54 minutes ago, regular_john said:

Netflix - what do we think?

 

I'm wary of falling into the 'too big to fail' trap but there's bound to be a massive rebound, surely??

I'd say they are almost at Betamax level at the moment, i can't remember the last thing i watched on Netflix since all the Marvel stuff was taken away by Disney. 

They expect to lose another 2 million subscribers next year, and are planning on cutting down on account sharing and I've also heard they are considering adverts in shows. 

Would have to be quite a turnaround.

[ender4]

53 minutes ago, regular_john said:

Netflix - what do we think?

 

I'm wary of falling into the 'too big to fail' trap but there's bound to be a massive rebound, surely??

My guess... they are past their peak.   

- Too many other streaming services, who actually have a decent back catalogue

- Too much rubbish on their platform, focused on quantity rather than quality. People have wisened up to that now. 

- Cancelling too many of their series too early because they chase the next big thing rather than allowing series to develop.

- The other streamers removing their IP from Netflix

- The other streamers have other revenue sources which are bigger. Netflix only has this 1 source of income.

[wazzap24]

48 minutes ago, regular_john said:

Netflix - what do we think?

 

I'm wary of falling into the 'too big to fail' trap but there's bound to be a massive rebound, surely??

I don’t think it’s finished falling yet. Next quarterly report likely to show another drop in subscriptions. The ad supported plan could provide a bounce, but don’t know how far away they are from launching that. 
 

From a personal perspective, I definitely think they’ve lost their content edge recently. I’ve been watching far more on Disney, Prime and Apple. If I had to drop one right now, it would probably be Netflix. 

Disney will have an edge going forward imo, because of the Marvel/Star Wars content. Amazon have the upcoming LOTR series, HBO have House of Dragon. Other than Stranger Things, I can’t see any major titles giving Netflix a boost?  

 

[wazzap24]

Blood on the streets in the US markets again. Buckle up. 

[Xela]

54 minutes ago, wazzap24 said:

Blood on the streets in the US markets again. Buckle up. 

Get buying!