Credit deflation and the reflation cycle to come (part 2)

[Loki]

4 minutes ago, Hardhat said:

Massively bullish for Hydrogen.

Edit: should explain my reasoning here is that long-term, a % mix of hydrogen with natural gas is much more likely with shorter term investment into natural gas infrastructure and the phasing out of other FF sources of generation.

I sometimes think the biggest risk for investing in the hydrogen sector is that the smaller companies developing hydrogen tech will get bought out before they realise any major share price gains.

That and they are on the AIM. I've bailed from them with the shirt still on my back. Not saying there isn't potential there though.

[Bobthebuilder]

3 minutes ago, Hardhat said:

Massively bullish for Hydrogen.

I sometimes think the biggest risk for investing in the hydrogen sector is that the smaller companies developing hydrogen tech will get bought out before they realise any major share price gains.

Bought out by whom? Its one of the reasons I hold the likes of Shell and Repsol. By the way I would like to buy more Repsol, but I am currently up 27%, nice.

[JMD]

17 hours ago, sancho panza said:

IKN has a good point ongoing about royalty PM miners suffering as goldies can access captial markets so not needing the streamers any more.Hence,as coal is getting backroomed,so the streamers should be a good place to hide.

Defo got me thinking about ditching Osisko and Sandstrom for Barrick.

That is really interesting - re potential direct financing of the pm's - and so by passing the current streamer model. SP I believe you were/still are (?) a relatively big investor in the pm royalty cos?                                                            I may have to reconsider my current (maybe overweight?) allocation to the pm streamers, as 15% of my total allocation to the 'pm miners' are royalty companies. I'm thinking trim back some of them, but keep Wheaton, Royal, Metala - as these are I think good royalty co. silver plays.                                                                          Not asking for investment advise of course, but would welcome thoughts on getting/maintaining leverage to the pm miners - which the royalty companies are meant to provide? They were also seen as a way to get diverse exposure, operating a relatively low risk business model. Perhaps they still do provide those benefits, but I believe some also carry lot more debt than others, so thinking those ones are definite candidates for selling.

[DurhamBorn]

1 hour ago, Bobthebuilder said:

Bought out by whom? Its one of the reasons I hold the likes of Shell and Repsol. By the way I would like to buy more Repsol, but I am currently up 27%, nice.

Repsol might float off the renewables side of the business as well.Most integrated oilies will likely end up doing that.Then shareholders can expect the legacy business to be ran for cash and dividends.Repsol will likely float off 49% ,but id rather they floated the shares to shareholders instead.

[Barnsey]

[Noallegiance]

29 minutes ago, Barnsey said:

Does this Blanchard fella write Sleepy's speeches?

[sancho panza]

14 hours ago, Cattle Prod said:

Recall what we discussed about XOM being your man if you want a pure play on oil and gas. They are an outlier in not investing in wind or solar. BP is the other end of the spectrum. Maybe the shorters don't believe in the BP strategy either?

Yeah I do CP,hence XOM is our biggest oilie holding now.It's good to balance it though.Ref the BP shorts,I ahve the utmost respect for anyone who surfs the short side of a big oilie stock with a 5% divi  into a $60 Brent headwind,25% of a 25 year low in the monthlies.These guys have balls.Big balls.

Interesting to see Muddy Waters still doing their stuff on Chinese frauds.

12 hours ago, DurhamBorn said:

It would be done at the BOE where banks park money over night.Banks would have to choose how to use it on their customers/account holders.In theory it would force banks to lend more and carry less capital,but the BOE should know that isnt the problem.The economy doesnt need bank lending,it isnt big enough for where we are in the cycles.It needs massive and sustained government fiscal pulses.In other words the BOE is talking shit.Negative rates would pull liquidity from the system,not add to it and cripple velocity as M3 falls hard.

The problem with western economies is we dont have enough economic backbone to pa for all the scrounging demands on the system.You can cut those demands,increase the economic backbone,or some of both.

It's funny,ever since we saw Joe Public take the stimulus cheques and pay down credit card debt in mar/April 2020,the already shockingly poor thesis for neg rates got even worse.For neg rates to work,you need a public that wants to borrow-I'll be more specific-you need members of the public that can and wil repay the laon to borrow not the people won't and can't repay.

This is what eventually led me to be persusaded by your thesis for the thread re govts injecting directly ie I have serious doubts the pubic will borrow their way our of this mess(see proviso above-banks lending to ninja's doesn't count),however,govts have a long track recored of being willing to spend beyond all levels of snaity

7 hours ago, JMD said:

That is really interesting - re potential direct financing of the pm's - and so by passing the current streamer model. SP I believe you were/still are (?) a relatively big investor in the pm royalty cos?                                                            I may have to reconsider my current (maybe overweight?) allocation to the pm streamers, as 15% of my total allocation to the 'pm miners' are royalty companies. I'm thinking trim back some of them, but keep Wheaton, Royal, Metala - as these are I think good royalty co. silver plays.                                                                          Not asking for investment advise of course, but would welcome thoughts on getting/maintaining leverage to the pm miners - which the royalty companies are meant to provide? They were also seen as a way to get diverse exposure, operating a relatively low risk business model. Perhaps they still do provide those benefits, but I believe some also carry lot more debt than others, so thinking those ones are definite candidates for selling.

we're around 15% iirc as well but I've lsot track a bit as they're held across differnet accounts, I only really track what we invest rahter than what it's worth now.Some of the the smaller runners eg Rio2 and Minera ALamos have done pretty well,the likes of Barrick,BVN,NCM,AU,AUY etc have all gone up.

DB reasoned the royalty streamers have life left in them to trnasfer out in good order and I'd go with that,but it's on my agenda to transfer those holdings into producers instead at teh right time,ie when there;s a decent swap on.At the mo that'd be NCM,GOLD,KGC msot probably and those holdings are ave prices $16,$15,$4 so we can take a hit on bringing the ave up.Dyor natch

[Heart's Ease]

For those who enjoy a little bit of theory with their Sunday morning coffee.  Makes mention of the Permanent Portfolio towards the end of the thread.

[Harley]

49 minutes ago, Heart's Ease said:

For those who enjoy a little bit of theory with their Sunday morning coffee.  Makes mention of the Permanent Portfolio towards the end of the thread.

Well, that's outed me then!

[Seacrest]

BP risk reward doesnt seem to be in short's favour.  They provide a weekly update on the investors site for RMM and marker prices.  Lots of caveats but it gives a broad outlook.

2021 to date  brent $55.1  $/bbl   WTI $52.45 $/bbl

Q4                            $44.16                      $42.63   

RMM now 6.8 vs 6.1

If you apply BP rule of thumb to those figures that's a huge disconnect. 

[Yadda yadda yadda]

10 hours ago, sancho panza said:

Yeah I do CP,hence XOM is our biggest oilie holding now.It's good to balance it though.Ref the BP shorts,I ahve the utmost respect for anyone who surfs the short side of a big oilie stock with a 5% divi  into a $60 Brent headwind,25% of a 25 year low in the monthlies.These guys have balls.Big balls.

How up-to-date is the data on BP shorts? Could be that they have been closing them since the results.

Alternatively they could have a nefarious plan.

[Castlevania]

17 minutes ago, Yadda yadda yadda said:

How up-to-date is the data on BP shorts? Could be that they have been closing them since the results.

Alternatively they could have a nefarious plan.

Or it could be part of a long/short basis trade. Buy Repsol, sell BP for example if you expect Repsol to outperform BP.

[Castlevania]

21 hours ago, Harley said:

Ignore the bitcoin title (although what's touched on is good) - Raoul Pal sees a BK too?

https://www.spreaker.com/user/11996645/210202-raoul-pal

Amusing to listen to Merryn being somewhat in awe of the guy!  And using that MacroVoices podcast strapline about upvotes = better guests!  Might even have hired a sound engineer, or Raoul brought along his own!

 

Thanks for posting this. It was a very enjoyable podcast. I knew Raoul Pal is very bullish on bitcoin, but interesting to see him being very bullish on Emerging Markets. It’s an area I need to revisit. The Brazilian investment trust I was invested in got wound up. I have a fair bit of exposure to South America indirectly through the likes of Repsol and Telefonica and more directly through the likes of Telecom Argentina and Cresud. If the currencies rise should be good for the likes of BAT too. However I think I should revisit Africa (I own Airtel Africa which covers some of this) and Asia and try and get some more direct exposure.

[Seacrest]

RDSB and BP both disconnected further from the brent price around june 2020,  either the price of brent is coming down,  unlikely,  or the market is wrong and the shares are re rated   

short brent long BP RDSB would be the obvious hedge  play at present   but these are not normal times.  The market will regress to the norm.  Brent cash closed last month  inside the 2019 trading range, and appears to have gone unnoticed  so far, or there is simple disbelief it will stay there.    

[AlfredTheLittle]

22 minutes ago, Seacrest said:

RDSB and BP both disconnected further from the brent price around june 2020,  either the price of brent is coming down,  unlikely,  or the market is wrong and the shares are re rated   

short brent long BP RDSB would be the obvious hedge  play at present   but these are not normal times.  The market will regress to the norm.  Brent cash closed last month  inside the 2019 trading range, and appears to have gone unnoticed  so far, or there is simple disbelief it will stay there.    

Wouldn't the dividend cuts explain why BP and RDSB have been tracking Brent at a lower level? 

[Barnsey]

Closer to home, same theme...

The question now, is this the inevitable policy mistake looming causing a bust? Or will they manage to look through and implement effective YCC in the short to medium term at least? The contrarian in me thinks we have one last short sharp leg down for stocks, but fear of (or at least awareness of) inflation risk creates inflation itself.

And more on the article...

 

[Seacrest]

There are as far as i can see for BP no plans to increase the dividend but instead to initiate buybacks when debt falls to $35b     end of this year  or  Q1 2022     that is based on divestment's and Brent trading $45 -$50 this year.  The expectation being its worth 40 cents per share at that point. 

Perhaps the market sees the current yield appropriate for the risk ?  but with each $1 on a rule of thumb being worth $340m and   Q1  to date at $55  the discount to me seems too great on fundamentals.

 

[DurhamBorn]

1 hour ago, Castlevania said:

Thanks for posting this. It was a very enjoyable podcast. I knew Raoul Pal is very bullish on bitcoin, but interesting to see him being very bullish on Emerging Markets. It’s an area I need to revisit. The Brazilian investment trust I was invested in got wound up. I have a fair bit of exposure to South America indirectly through the likes of Repsol and Telefonica and more directly through the likes of Telecom Argentina and Cresud. If the currencies rise should be good for the likes of BAT too. However I think I should revisit Africa (I own Airtel Africa which covers some of this) and Asia and try and get some more direct exposure.

BAT also has very large investments in India and its a really big focus for BP.Imperial Brands has 8% of profits from Africa and is market leader or 2nd in a good few markets there.I expect them to really push that going forward.Repsol are a fantastic investment for South America like you say and TEF should be once they sort out their debt.They are doing a good job getting it down,but a bit more to go yet.Vivo Energy are interesting for Africa for a small punt.

I think a lot of UK stocks that are hated are some of the ones who should gain from emerging market disposable income growth.Of course the biggest gains from income growth will be energy.

 

[Democorruptcy]

2 hours ago, Castlevania said:

Thanks for posting this. It was a very enjoyable podcast. I knew Raoul Pal is very bullish on bitcoin, but interesting to see him being very bullish on Emerging Markets. It’s an area I need to revisit. The Brazilian investment trust I was invested in got wound up. I have a fair bit of exposure to South America indirectly through the likes of Repsol and Telefonica and more directly through the likes of Telecom Argentina and Cresud. If the currencies rise should be good for the likes of BAT too. However I think I should revisit Africa (I own Airtel Africa which covers some of this) and Asia and try and get some more direct exposure.

Grantham was also suggesting EMs

https://www.bloomberg.com/news/videos/2021-01-22/why-grantham-says-the-next-crash-will-rival-1929-2000-video

[DurhamBorn]

12 minutes ago, Seacrest said:

There are as far as i can see for BP no plans to increase the dividend but instead to initiate buybacks when debt falls to $35b     end of this year  or  Q1 2022     that is based on divestment's and Brent trading $45 -$50 this year.  The expectation being its worth 40 cents per share at that point. 

Perhaps the market sees the current yield appropriate for the risk ?  but with each $1 on a rule of thumb being worth $340m and   Q1  to date at $55  the discount to me seems too great on fundamentals.

 

Im glad BP has its policy set to buy back shares.I wish they would start now and stop paying down debt though.I also think they should then move to a policy like Imperial Brands are once debt is in range.That is a slowly growing dividend,and each year buy backs,or special dividends depending on conditions,ie the share price.I like that approach.On Imperial id expect share buy backs below £21 a share,above £21 a share special divs and maybe a small cut in debt.Id also expect a split between special/buy backs once they have bought back 20% of shares IF operating profits can flatline.They might also do some M&A some years with their spare £1.2 billion a year.

At $60 Brent BP will also have 4% of spare cash on top of their policy.I expect at first they will do higher buy backs and maybe slowly drift the debt down.Mid cycle i expect they will move to a similar policy as Imperial.Buy backs or special divs.

 

 

[Democorruptcy]

18 minutes ago, Seacrest said:

There are as far as i can see for BP no plans to increase the dividend but instead to initiate buybacks when debt falls to $35b     end of this year  or  Q1 2022     that is based on divestment's and Brent trading $45 -$50 this year.  The expectation being its worth 40 cents per share at that point. 

Perhaps the market sees the current yield appropriate for the risk ?  but with each $1 on a rule of thumb being worth $340m and   Q1  to date at $55  the discount to me seems too great on fundamentals.

 

Maybe some are short because rather than looking at the usual oil fundamentals they are taking a punt on the covid vaccinations not proving as useful as hoped. More lockdowns, less travel etc.

Going forward could the prices of oil firms that are sounding more wokey, be less correlated to the oil price? If we said the correlation now is 1, what will it be in 20 years? There was an article that suggested BP had practically stopped looking for new oil, 700 staff cut to 100.

[DurhamBorn]

17 minutes ago, Democorruptcy said:

Maybe some are short because rather than looking at the usual oil fundamentals they are taking a punt on the covid vaccinations not proving as useful as hoped. More lockdowns, less travel etc.

Going forward could the prices of oil firms that are sounding more wokey, be less correlated to the oil price? If we said the correlation now is 1, what will it be in 20 years? There was an article that suggested BP had practically stopped looking for new oil, 700 staff cut to 100.

Stopped looking for oil outside of basins they already understand.They can tie in for around 40 years yet just from their present fields and of course always the option to buy out smaller players,or more likely mergers at some point.Big oil is funny because really it should do a tobacco and consolidate down to a few players and churn out cash,but governments dont like their oil producers ending up in foreign hands.Given the woke noise now though it would be interesting for a couple of big players to try it and play the hymn sheet that its so they can invest more into the transition,call governments bluff a bit.Telcos are now doing that with governments and i expect them to buckle,especially the EU where TEF,VOD and DT are close to having them over a barrel at last.

[Seacrest]

The presentation eludes to fewer projects at greater returns, but recognises its bread and butter stuff at present till 2025 or so.  IF 40 cents is accepted given the low Brent range cited  that sends the "yield" back into double digits by year end.  I am old so get the widows and orphans funds that  "used" to hold, it seems new money is a parabolic share chart  not yield.  maybe a 250 - 300 trading range    248 is the 50% retrace of oct low to jan high 

[sancho panza]

 

6 hours ago, Yadda yadda yadda said:

How up-to-date is the data on BP shorts? Could be that they have been closing them since the results.

Alternatively they could have a nefarious plan.

I don't think shorts data isnthat up to date,fortnightly/monthly.happy to be corrected.It's drawn from regulatory filings iirc.

 

4 hours ago, AlfredTheLittle said:

Wouldn't the dividend cuts explain why BP and RDSB have been tracking Brent at a lower level? 

Not really,given they outran Brent on the run up from the oct low snd have now pulled back.Interesting to see XOM/REP going against the grain.

Obviously these charts can alter depending on the start date but the point is relevant imho.I can't see rhyme nor reason to the cahnges which means as you say brent runs down or BP/RDSB run up.I think if we were going to get a decent pull back it would have been post run up from $39 to $59.Some of the big players pulled back but not B as yet.

3 hours ago, DurhamBorn said:

BAT also has very large investments in India and its a really big focus for BP.Imperial Brands has 8% of profits from Africa and is market leader or 2nd in a good few markets there.I expect them to really push that going forward.Repsol are a fantastic investment for South America like you say and TEF should be once they sort out their debt.They are doing a good job getting it down,but a bit more to go yet.Vivo Energy are interesting for Africa for a small punt.

I think a lot of UK stocks that are hated are some of the ones who should gain from emerging market disposable income growth.Of course the biggest gains from income growth will be energy.

 

Bought a first ladder in BAT's the other day.First baccy co since we bought ye olde Gallaher back in the millenium.Incredible to look at would have been had we stayed in baccy(and aslo Billiton past 2007).Incredible to see the BATs divi as what you were paying for the shares back in the tech buble.

Like you say these big integrated co.s offer a great way to gain EM exposure without all the risk of buying country specific ETF's which carry some right dodgy banking stocks

[sancho panza]

3 hours ago, Democorruptcy said:

Grantham was also suggesting EMs

https://www.bloomberg.com/news/videos/2021-01-22/why-grantham-says-the-next-crash-will-rival-1929-2000-video

I'm on shoft for a couple of nights but that'll be one to watch when I get time.75% top to bottom in S&P would be within historical norms in terms of P/E multiples.This has en end of cycle feel to it much like 1929.We didn't realy get the credit deflation in 00 due to it mainly being stock market that caught the cold.