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

[RickyBacker]

3 hours ago, Noallegiance said:

They're a hated sector again!

Tobacco stocks drop on report Biden is planning to limit cigarette nicotine (cnbc.com)

As an ex-smoker I remember moving to 'Silk Cut' low nicotine. Result; I smoked twice as many.

[Barnsey]

3 hours ago, Lightscribe said:

https://www.newsweek.com/dogecoin-gets-support-newegg-snickers-milky-way-doge-day-1584885?amp=1

And if you needed any more proof of peak cycle clown world...

A digital meme coin with a dog on with no white paper or technical roadmap becomes official currency.

Due to the 130 billon circulating supply if it continues to increase in value, you can see why economies like Turkey want crypto banned. Maybe it will be allowed to continue to be the ‘straw’ that breaks the camels back for regulation.

You could argue is it any more silly than a plastic promise note with the queens head on I suppose. 

I'm still of the belief is that it's acting as an ideal flood bank for stimmy checks

[sancho panza]

On 19/04/2021 at 11:11, Cattle Prod said:

Middle East rig count averaged 414 in 2019. Worldwide was 2177. This is a measure of activity. Bear in mind that this level of activity produced no growth outside of the US, just kept things broadly flat. Today the numbers are ME - 257, World - 1228. All over the world, producers are doing what the above map shows: high grading. Trying to do more with less. This has baked in a structural supply problem which not be turned around for 3,4,5 years. It should show up later this year, if not, next year. Saudi or whoever will announce 'voluntary cuts' or just not bring back to the market what the market thinks is off it. But the numbers don't lie. It is impossible to go back to 2019 rates of production with almost a thousand rigs not working. High grading may mask for a little while, I don't know how long. But it's baked in, there has been a year now of low activity. If demand gets back to 2019 levels, the supply won't be there.

 

Thanks for that full and detailed response.

As you say @planit poses the question rightly as to how the oil supply gap gets solved without higher prices.Those rig numbers,to my very untrained eye,tell me that the supply gap will get worse before it gets better,especailly if the position is being skewed by producers high grading(soemthing I wouldn't have thought of if you hadn't mentioned it).If and when the West returns to normalcy-looks like the rest of the world is already headed there-then maybe my $80 call for the top in oil ahead of the BK is short of the mark.

I just can't get my head around the drop in the rig count.I know that US shale used a disproportionate amount of rigs but still,that's a lot of capacity mothballed.

It's also interesting to see that @DurhamBorn call on weaker DXY appears to headed in the right direction after tapping 93.3 on the dailies.Two weeks later 91.That dollar rally wasn't as bouyant as many were predicting in the commenterati

We jsut cashed some options from last year,which I'm rolling back on.DYODD as ever.I'm avoiding the long dated stuff because my timeline here ends in October 21 for the time being.

Here's a couple of charts I've played with.RDSB drawing my eye at the mo.from the bottom in oct 20 and then from the more recent top 11/3/21.Trading at a discount to Brent-not that that always matters.

 

[sancho panza]

On 19/04/2021 at 12:03, Cattle Prod said:

Thanks Sancho, very useful and timely.

Interested to see that the South African big two Harmony and Sibanye come in at only 14.

@kibuc raised this question re HMY and I pointed out to him,that the coma scores are done on the last full year so companies like VOD/BT/HMY for instance.Looking at HMY accoutn for the half year to Dec 20,they look very good and will likely pick up a bigger score on the back of those.In all honesty,I should probably not have psoted the HMY score as their current postion is materially differnt to that reflected in teh coma score.

 

Decl:We're currently in the process of selling Peru exposure and have a biggish postion in BVN that's going.I suspect some of that will be rolling back into HMY(we sold at $6 in August),B2G,Ymana,Anglogold &Eldroado.We already have enough in Kinross and Barrick or I'd have some of them too.

 

ref Sibanye,Here's their full year to Dec,their chart score is a 1 because they're at a peak and y chart score relates to historical upside/downside.

Essentially,the score reflects the fact that it's a company producing steady profits/cashflows but is priced at 'fair value' to others imho.Hence I now list the price it was measured at for context.

 

[DoINeedOne]

On 18/04/2021 at 21:44, DoINeedOne said:

Interesting video about Nordstream 2 its pretty much done apparently

Think the funniest part was the US sanction on the construction ship fews day later it just carried on as normal

 

[AWW]

5 hours ago, DurhamBorn said:

Indeed,and what i find interesting is the fact football hasnt cared about fans for 15 years+.Its just an argument over who the parasite sucking the blood should be now.Though i admit iv never understood why people watch it anyway.

Exactly. The fans are all out making banners in protest, but they carry on buying season tickets and paying Sky subscriptions.

[sancho panza]

@Cattle Prod as a for instance,KGC,looks to be around CAD$1bn for 2020...........

Yamana CAD$315mn

 

[sancho panza]

On 19/04/2021 at 12:22, planit said:

They have supply currently at 9mbpd of spare capacity, hopefully this is overly optimistic as CP points out

Saudi 4m

UAE 1m

Iraq 1m

Rest OPEC 1.3m

NON-OPEC+ 2.2m

They also have 4m off the market due to geopolitical reasons (Venezuela and Iran = 3.7m of that)

They have current supply at 92.5mbpd

The report paints the impression that there is loads of available supply (92.5+9+4 = 105.5mbpd) to cover demand going forwards.

Most countries around the world are desperate for cash and I can't think of a reason why they wouldn't be producing as much as possible at current prices (outside OPEC+). Perhaps they are ramping back up after the cuts last year but the report implies its more like supply can be switched on or off.

 

 

Thanks for that data.I wonder how much of Non OPEC is US shale.Even if this could be brought back to market,how long will that take with the rig count worldwide around 1200?

 @Cattle Prod  has allready taken a geologists scythe to the Saudi spare capacity .Be interesting to know how long that Sauid number at 4mn would last if they went full throttle?

 

Edit to add:one of the rpoblems of reading four days worht in one go is that you miss some of the replies and I see CP has already chopped those numbers off at the knees.

Simply incredible to see that US shale fiugre being quoted as sparecapacity.

[AWW]

4 hours ago, Noallegiance said:

They're a hated sector again!

Tobacco stocks drop on report Biden is planning to limit cigarette nicotine (cnbc.com)

Therefore cig companies put less tobacco in each cig, manufacturing costs go down, price stays the same and smokers end up smoking more cigs.

[Lightscribe]

40 minutes ago, Barnsey said:

I'm still of the belief is that it's acting as an ideal flood bank for stimmy checks

It most certainly is.

Remember in the dot com mania before the crash, it was still relatively unwieldy for the average person to buy shares (share certificates etc)

Now it’s peak bubble multiplied by peak accessibility. Any person with internet access globally can buy a few doge with a relatively inexpensive phone. Apps like Robin Hood has made the interface as easy as any simple app. You have kids chucking their allowance money into it.

Stimulus cheques was just free money to go all in and pour petrol on the fire.

[Boon]

Seems like a massive sell-off going on. Another hedge fund being liquidated maybe?

[Noallegiance]

23 minutes ago, Boon said:

Seems like a massive sell-off going on. Another hedge fund being liquidated maybe?

Massive may be over-stating it.

My understanding is that melt-ups experience frequent dips of up to 3-4%. Which, in order to continue the melt-up, means bigger and faster up-legs.

Was there ever a more hyphenated sentence? Not in a post-GFC world.

[Harley]

55 minutes ago, Boon said:

Seems like a massive sell-off going on. Another hedge fund being liquidated maybe?

Where?

[planit]

@Cattle Prod

Here is the OIES April report link. Hopefully we are not oiling up the thread by delving deeper into this.

I agree with you regarding the Saudi production situation, I feel the press don't want to call Saudi out because of the history but there does seem a good case here that they won't be able to consistently produce the stated figures. They probably like this current "voluntary" production drop as it is giving their wells a couple of years to become fertile again. If we take that graph as production limits they will be able to reach 10.3mbpd for a year, or 10mbpd for a longer period. If their production drops to 9.5mbpd at end of 2022 that would be a real surprise to everyone.

 

@sancho panza

This looks like a bit of a binary bet to me, if OPEC stay in control of people's beliefs then iol will not go over $70. If the market gets a hint that there will be a shortage 12 months into the future then they will start trying to trade the squeeze and oil will rise fast.

Goldman nailed their DXY call, they must have needed to sell some Dollars to their clients .

I am hoping RDSB get pulled up by BP but they really screwed up their hedging and trading by the sounds of things and the voting at the AGM isn't what investors want to hear. Medium to long term I am sure it will be fine.

 

Edited to add after reading another of Sancho's posts:

Theory is that the prices of BP and RDSB (and potentially the others that have risen further already) are good value working on the predicted prices of oil for this year of $60-$65 (we are already 4 months in), this covers the buy and we get these free 'bets' as a bonus

Seems like there is a couple of bites of the cherry for the lack of supply trade:

Firstly that the hibernating supply will take longer to get back on line than the market needs. Secondly, a year or 2 out, the lack of investment along with the limit of Saudi production will cause a  structural shortage lasting a couple of years.

High demand also has a bite of the cherry if all the stimulus and green energy spend sends demand rocketing as we have a 'roaring twenties'

 

Not such a good day today

[MrXxxx]

23 hours ago, Cattle Prod said:

Exactly. I'm not sure what my currency would be, think I'd start growing weed 

Growing weed, sex or alcohol....fortunately for me I can make a decent bottle of Mead, otherwise I would starve! :-)

[MrXxxx]

22 hours ago, Cattle Prod said:

What an opportunity that was, enormous demand for a relatively harmless substance banned outright by idiotic pols and bureaucrats. A once in a lifetime market, oh, to have a crack at something like that.

I had a granduncle emigrant who got his start in New York running a speakeasy at that time. My cousins, his grandchildren, live in the Hamptons. Sounds like a tall internet tale, I know, but it's true.

Well all theses SMEs put out of business due to the absurd Covid restrictions will have to turn their hands to something else then!

[Barnsey]

Top apps on Google play store right now tells you quite a bit about where we are...

[MrXxxx]

12 hours ago, JimmyTheBruce said:

According to the lead story on the BBC this morning, the proles are busy making banners about some fellas kicking a ball about.  Seems the PM and parliament also have it high on their agenda.  Why do I feel like my attention is intentionally being diverted from something that is actually important 🤔

I'll keep watching, I'm sure the piece on inflation, CBDCs, creeping socialism, and the impending implosion of the economy will be on next.......

Agree, I couldn't believe on the news, peoples civil rights are being eroded day by day a they sit there `swallowing it`, mention a change in football and they are `up in arms`....what a clueless a infantile nation we have!

[MrXxxx]

10 hours ago, JimmyTheBruce said:

Another poke in the eye for tobacco.....

https://www.msn.com/en-us/money/companies/cigarette-makers-plunge-on-news-that-us-may-curb-nicotine/ar-BB1fPg9b

Might buy some more BATS 

 

Not a problem, the manufacturers will `hawk` vapes in the restricted markets, and ciggies in the Developing nations....win/win!

[MrXxxx]

5 hours ago, AWW said:

Exactly. The fans are all out making banners in protest, but they carry on buying season tickets and paying Sky subscriptions.

Sheep!

[Loki]

32 minutes ago, Barnsey said:

Top apps on Google play store right now tells you quite a bit about where we are...

I was torn between laughing and info reaction and went for info as it's really a very interesting data point! 

[Yellow_Reduced_Sticker]

On 16/04/2021 at 12:31, sancho panza said:

Worth a full watch as ever.But from 15 minutes,he begins the 'Road to Serfdom' and it's utterly compelling.

Basement dwellers are familair with the theme of how FUBAR the West is,but this really spells it out for simpeltons like me.

 

 

I banned myself from the covid threads as they just got me down , ...anyway I had a watch of this video last night, in a way glad i watched it for the info...BUT Really wish i never watched this as the ending was VERY DEPRESSING!!!

 

@DurhamBorn have you watched this? Also are YOU still in touch with the elderly gentlemen that taught you the macro stuff back in the day? I remember you always saying that he hoped he would be gone by 2030?

 

It would be nice to have ya thoughts/view on this video's ending theme, CHEERS mate!

 

[AWW]

Some more anecdata, my new workplace has said I'll be going back into the office when the roadmap allows, but they're only mandating two days a week. The other three, I can work from home. This is at a place that previously limited working from home to two days a month.

I don't know anyone who works in the city who is being asked to return full time.

I think London resi is utterly, utterly fucked now.

[sancho panza]

6 hours ago, planit said:

@Cattle Prod

Here is the OIES April report link. Hopefully we are not oiling up the thread by delving deeper into this.

I agree with you regarding the Saudi production situation, I feel the press don't want to call Saudi out because of the history but there does seem a good case here that they won't be able to consistently produce the stated figures. They probably like this current "voluntary" production drop as it is giving their wells a couple of years to become fertile again. If we take that graph as production limits they will be able to reach 10.3mbpd for a year, or 10mbpd for a longer period. If their production drops to 9.5mbpd at end of 2022 that would be a real surprise to everyone.

 

@sancho panza

This looks like a bit of a binary bet to me, if OPEC stay in control of people's beliefs then iol will not go over $70. If the market gets a hint that there will be a shortage 12 months into the future then they will start trying to trade the squeeze and oil will rise fast.

Goldman nailed their DXY call, they must have needed to sell some Dollars to their clients .

I am hoping RDSB get pulled up by BP but they really screwed up their hedging and trading by the sounds of things and the voting at the AGM isn't what investors want to hear. Medium to long term I am sure it will be fine.

 

Edited to add after reading another of Sancho's posts:

Theory is that the prices of BP and RDSB (and potentially the others that have risen further already) are good value working on the predicted prices of oil for this year of $60-$65 (we are already 4 months in), this covers the buy and we get these free 'bets' as a bonus

Seems like there is a couple of bites of the cherry for the lack of supply trade:

Firstly that the hibernating supply will take longer to get back on line than the market needs. Secondly, a year or 2 out, the lack of investment along with the limit of Saudi production will cause a  structural shortage lasting a couple of years.

High demand also has a bite of the cherry if all the stimulus and green energy spend sends demand rocketing as we have a 'roaring twenties'

 

Not such a good day today

No,no,let's delve into it.I've learned so much from the oil disucssion ehre and it's postively shaped my investment thesis going forward.Discussing all this in detail is good for the soul and msot likely good for perpsective.

The more I'm reading you and CP's recent posts,the more I'm comingto the conclusion that we're heading for a supply shock moment.I've psoted before about oil price rises preceding recessions/crash phases and this one will likely follow historical precedent.

AS you hgighlight,it looks like the inventory drawdown confiming this.

For me,as a simple soul,I look at Brent.$65 today.I'm not seeing $40-$45 on a supply demand basis without a BK.

The long term trade is to sit tight,but I've got soem free bet money from XOM/BP/SHell options  and whilst I'm leaving the shares to run,I do fancy another run at the casino table.

I'll read that report tmrw,but i saw the folowing chart and seriously pondering some RDSB calls tmrw and also possibly selling EQNR to buy a cross section fo the others.

Using monthlies,this chart starts when Brent was last $65 Dec 2019.Time for sleep.Interesting day.Learned loads of this thread today.

 

[Noallegiance]

5 minutes ago, AWW said:

.

I think London resi is utterly, utterly fucked now.

Shame