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

[DurhamBorn]

2 hours ago, BurntBread said:

DB, that last bit is a very striking call, which I have not seen mentioned here before.

I think you and David Hunter are broadly in agreement over the next few years, that oil will have a run up from now, to $70+, followed by a fall in the BK (DH mentions sub-$20), then a bumpy ride up to $200+ towards the end of the decade.

By "long-term", do you mean post 2030? If so, then a few things puzzle me: I think we are expecting oil demand to still be drifting up at this point (albeit gas will be taking a much bigger share of the total world energy budget), so I'm puzzled to see a figure so low as $50. Next, I think you entertain holding big oil for 30 years, so would it be fair to say that is much more on the strength of gas and green energy investments, which is why you're not fazed by a low (in my view) oil price? Lastly, and more profoundly, we are anticipating questions about the persistence of the dollar as a global reserve currency beyond 2030. Does a call in dollars even make sense after a systemic shift of that kind? Even if the dollar persists in its current status, you are suggesting a dalliance with hyper-inflation before the end of the super-cycle, and perhaps a real and destructive deflation through it, followed by who knows what in the immediate aftermath. I guess I'm just saying that it's not clear to me currently what "a dollar" means, post 2030.

I think oil demand will flatline soon,not grow,then drift lower very slowly.Profits will hold though as they will be spending less.Gas will keep growing and LNG explode up.Those $50 are long term calls based on only a few data points.The $200 call is firm though,thats minimum as well.We have a long way to go before the end of this new cycle,plenty of time to consider it down the road.

[sancho panza]

3 hours ago, planit said:

Thanks again @sancho panza.

I get that the spikes seem to correlate with recessions but between 2011-2014 oil prices averaged $95 which would translate to $117 at today's prices (using 3% inflation).  I can remember at the time commentators saying that oil prices had decoupled from the economy because we are now a technology and service economy. At the least there is less dependence on oil. 

2000 spike is far ahead and since the bust was dotcom probably not useful here. 

1990 the spike does coincide with the recession but it is a bit quick for it to have caused it.

2008 seems closer to our current situation. 

Overall perhaps the things that cause oil spikes also cause economic problems which I suppose is what you are alluding to. In that case it isn't really the level oil gets to, its whatever causes the price shock that counts.

 

I agree that if we suddenly see $80 soon there is something serious going on which will not be good and is likely to also result in a downturn.

But I also feel when people start to realise OPEC+ have maxed out, prices will inevitably go over $80 and this will not cause a recession. But not this year.

My apologies,I didn't really spend much time on my earlier reply and looking back it wasn't particualrly full or pertinent in some respects.Just roughly to give you and idea of where I'm coming from I'll outline my thoughts and where they come from.Feel free to question them as I'm trading off some of the stuff I'm talking about and every day is a learning day for me and questions above have got the old cogs whirring.Obviously,oil isn't the whole economy,but the search for me,is to find tradeable signals,so I'm not claiming a 50% rise in oil prices causes a recession but I am saying they are a factor.

The Recessions referred to on those charts are two quarters of negative nominal declines on the bounce.

Personally,I don't set too much store by the exact date of the start/end of the technical recession as I can't really make any money off it or move asset classes on the back of it.What I can try and trade is market tops/bottoms.I psoted the chart as a reference point I suppose.

Also,GDP data is heavily gameable,eg imputed rents which are around 8% of USA GDP and are effectievly an accounting fiction.They would have been lower back in the early 90's but the point needs considering.

GDP also is rarely quoted per capita but it should be imho,as we'd have a very different outlook on our national wealth if we did.

The inflation data is also game able depending which measure they use eg CPI/CPIH/RPI and when it comes to real GDP which deflator they use and what it excludes.

Here are some charts for the recessions concerned using Real GDP measures.You can see that sometimes a quarter or two before the technical recession begins,the weakness is apparent.The crucial aspect in terms of Real GDP is that the implied price deflator used excludes imports which means that it's not particualrly reliable

https://www.bea.gov/data/prices-inflation/gdp-price-deflator

A lot of the following is from a previous post

1990

You can see that in Q4 1989,there was already a likely negative GDP print in real terms or at least sever weakness economically.

Oct 1988 Oil bottoms monthly close $13.58,intraday $12.28

Jan 1990 WTI at $24.20 intraday peak a 78% rise from Oct 1988

Jan 90 S&P 500 first attempt at 360 intraday

May 90 S&P 500 peaks around 360

July 1990  US recession starts with oil at $20.69

Sept 1990 oil peaks at monthly close $39.51

Oct 1990 oil intraday peak $41.15

Oct 1990 S&P 500 bottoms

March 1991 US recession ends with oil at $19.63

https://www.macrotrends.net/countries/USA/united-states/gdp-gross-domestic-product

 

2000

Dec 1998  Oil bottoms at $10.35,turns up

Mar 2000 S&P 500 Intraday peak

Aug 2000 S&P500 monthly peak

Sep 2000 Intraday oil peak at $37.80

Jul-Sept 2000 Real GDP 0.53%-possible start of US recession not using real world view of economy.

Nov 2000 Oil peaks on monthlies at $33.82

Mar 2001 US recession begins

Nov 2001 US recession ends.

Aug 2002 S&P bottoms on the monthlies

 

2008

Jan 2007 Oil bottoms on the monthlies at $58.14

Oct 2007 S&P peaks on monthlies at 1550

Dec 2007 US enters recession with Oil at $95.98

June 2008 Oil peaks at $140-monthlies

Feb 2009 S&P bottoms around 730 on the monthlies

June 2009 US recession ends with oil at $69.89

 

 

Obviously with any of this you have to apply your own judgement.It's been interesting for me to run back over this stuff from last year.There are obviously many other factors involved in the deciosn to move to cash,UST's or go short.

 

[sancho panza]

4 hours ago, planit said:

Thanks again @sancho panza.

I get that the spikes seem to correlate with recessions but between 2011-2014 oil prices averaged $95 which would translate to $117 at today's prices (using 3% inflation).  I can remember at the time commentators saying that oil prices had decoupled from the economy because we are now a technology and service economy. At the least there is less dependence on oil. 

 

This is one of those times when you have to take a view,and it probably explains why the move to short has to include a much broader analysis besides oil price.

Oil hadn't decoupled from the economy,rather Central Banks had decoupled the economy from the oil price.That timeframe saw the introduction of Zirp,QE,Op Twist,lowered mortgage rates etc to the extent that the average consumer felt wealthier because even though consumers out of pocket costs were rising,it was compensated for by their mortgage payments getting cheaper,cheap loans etc.

This time around,I suspect mortgages won't be getting cheaper,food and fuel price rises are going to hurt a lot of people.If the price rises coincide witha credit deflation,then it'll be the worst of both worlds and as has been said on here by a few,CB's will run out of pritning room at 3% CPI.

Time will tell I guess.But an oil price above $80 on the monthlies will tick a box on my checklist.

 

[AWW]

4 hours ago, feed said:

So is that the commonality here, growing up somewhere shit.  

You hate it and you'll know you have to leave. 

Shittiness is in the eye of the beholder.

I grew up "somewhere shit", but I find myself missing the place nowadays. Normal, grounded people who judge you on what you're like, not which school you managed to get your kids into or which cafe you buy your coffee at.

[sancho panza]

5 hours ago, Cattle Prod said:

Here's a nice bit of data to support what we've been theorising about over the last year. We said commentary is Western centric, demand growth is in Asia, they are taking up the slack etc. Here is China:

These numbers are even higher than I expected, they are carrying on as if nothing ever happened (which if you believe the idea about the CCP propaganda with people dropping dead in the streets, then opening the city a month later, makes perfect sense). What I see in this table:

- Their production is more or less flat as I said. They are in the same position as Saudi: massaging a few giant old fields.

- Imports increased in 2020 over 2019 - they bought up the cheap oil as discussed.

- Significantly, 2021 imports are up again, so they didn't get enough cheap oil last year.

- Exports are virtually nil. Bears in the MSM keep saying that the reason China need so much oil their cunning plan is to build out refining capacity and then flood the international market with products. No evidence of that yet. Simpler explanation is that they are consuming it, and unless their population wants to stay at their present standards of living, they have to. The western mind seems unable to comprehend this, I find it bizzare.

So imports are up 1.2m barrels over 2019, I think I was pretty close with my prediction on that. Think about that number. As I kept saying "if world demand returns to normal there will be problems". Let's say western govts stop the chicken little routine (maybe because inflation ticks up and handing out cheques has to stop. It's gone on far longer than I thought it would...) and we all get back to work, flying, etc. Where is that 1.2m barrels going to come from? It's new demand. It'll keep increasing too. China will need to import ~2m barrels over 2019 next year. Maybe 3.5m in 2023. That's more than the full export capacity of Iran, in 3 years. As in, a new Iran, not including the stuff they are already supplying. What has happened on the supply side since 2019? Did we invest while things are cheap to cover the inevitable snapback? Did we manage to find a new Iran anywhere? Oh I forgot, the industry is dead and univestible.

I've put graphs up here that shows demand as a ruler straight linear relationship for 40 years, with a 3 year blip for the GFC, and maybe a 2 year blip for this one. This is going to continue, and crash headlong into an industry that is drilling half the wells it needs to be. It's that simple.

Oil stocks are lagging because they always do, this is not the precious metals sector. And sentiment is the worst it's ever been. But they will catch up.

@sancho panza I'm glad my geo aside on why you need to be gentle with mature fields helped you understand the Saudi problem, I didn't think people would be interested so I dont add much of that stuff, but if you think it useful to the conversation just ask me any of those kind of questions you have.

@DurhamBorn I enjoyed you post last night and can relate to a lot of it, though it's been a good while since I put anyone across a bar! You old man's son is a bit of a legend too.

Mind blowing numbers there CP.I think this thread has been talking about the issue of the commenterati looking West when they should be looking East for some time.These number sreally do confirm that.

One aside,how does the maths for the implied crude oil demand being 1.7mn bpd higher work.I can do the maths on improts from the chart.

ref the geo stuff,I've learned so much over the last year or two,can't thank you enough.From the bottle of fizzy coke explanation for declining wells,to the exaplantion of the treadmill in US shale expalining why there's such a high rig count needed to maintain proiduction,I've lsitened and remembered them all.So much becomes clearer when you understand the issues the drillers might be facing.That expalantion on the saudi wells finally got me to understand why you're always saying they can only go full tilt for short time periods.

It's more when you offer the lesson I realsie the import of it to be honest CP.I generally wouldn't even have the udnerstanding to realsie the question I need to ask.

[jamtomorrow]

17 hours ago, Hancock said:

But at least they'll turn up, which is more than can be said for those WFH in Britain.

It's nothing to do with WFH.

Show me a Brit whose builders always turn up or who never had shite service eating out or who never got screwed over by a garage, and I'll show you a liar.

The culture of incompetence and doing-the-bare-minimum is alive and well in every walk of life in the UK, and the exceptions can seem like minor miracles.

[wherebee]

1 hour ago, jamtomorrow said:

It's nothing to do with WFH.

Show me a Brit whose builders always turn up or who never had shite service eating out or who never got screwed over by a garage, and I'll show you a liar.

The culture of incompetence and doing-the-bare-minimum is alive and well in every walk of life in the UK, and the exceptions can seem like minor miracles.

To be fair, having lived in 4 continents, that is the human condition.  Do the minimum in most situations.

The only place that it wasn't common was some asian countries, and only because they either wanted a huge tip or were monitored by bosses.

[Hancock]

1 hour ago, jamtomorrow said:

It's nothing to do with WFH.

It is, because prior to March 2020 the public sector was just bad, now its so unbelievably incompetent its truly beyond belief.

As for builders most are self employed, if they put in a poor performance or don't turn up they don't get paid, and/or lose future work.

[jamtomorrow]

8 minutes ago, Hancock said:

As for builders most are self employed, if they put in a poor performance or don't turn up they don't get paid, and/or lose future work.

If only that were true. Plenty of useless feckless shite-arse builders round here still in business having been useless feckless shite-arses their entire working lives.

Public sector might well be even worse, but private sector in UK isn't the vibrant beacon of hope some would have you believe. The national malaise runs through everything.

17 minutes ago, wherebee said:

The only place that it wasn't common was some asian countries, and only because they either wanted a huge tip or were monitored by bosses.

Parts of the states are decent. Back when I used to travel to the states for work, it was always a shock coming back to the shire and re-adjusting to the mediocrity we put up with in this country, day in and day out.

[Noallegiance]

10 minutes ago, jamtomorrow said:

If only that were true. Plenty of useless feckless shite-arse builders round here still in business having been useless feckless shite-arses their entire working lives.

Public sector might well be even worse, but private sector in UK isn't the vibrant beacon of hope some would have you believe. The national malaise runs through everything.

 

I wonder if that would change if the handouts were dramatically cut and folk actually had to do things of quality to earn.

[Hancock]

1 minute ago, jamtomorrow said:

Public sector might well be even worse, but private sector in UK isn't the vibrant beacon of hope some would have you believe. The national malaise runs through everything.

From my experience there is the "private sector" with companies such as National Grid where they hire as many people to do non-jobs as the actual public sector, maybe even more.

Then there is the "real private sector" with people who get paid for the work they do, whether they be builders, butchers or candlestick makers. This lot will do the job to the best of their ability; builders or anyone who doesn't turn up sound more like chancers to me.

But the one big difference is if someone i hire a builder, hairdresser or whatever to do a job and they're useless i can get rid of them, this isn't the case when dealing with the public sector. it's just an endless banging of ones head against the wall.

[wherebee]

6 minutes ago, Hancock said:

But the one big difference is if someone i hire a builder, hairdresser or whatever to do a job and they're useless i can get rid of them, this isn't the case when dealing with the public sector. it's just an endless banging of ones head against the wall.

I'm dealing with a local council planning department right now and fuck me are they useless.  No incentive to actually make any decisions, as there is no way of going to a competitor and no way of withholding payment.

 

[Bricormortis]

posted in error, cant seem to edit it out

 

 

 

 

[Bobthebuilder]

8 minutes ago, Bricormortis said:

error cant delete this anyone got any suggestions

@spunko

[Bricormortis]

yeah bob ta.

[Bricormortis]

Was going to post about Turkish crypto exchange owner has done a bunk with maybe $2 billion of other peoples money.

[DoINeedOne]

Click  the 3 ... in top right of your post > edit then click the delete icon on the image at the bottom where its been uploaded Not just deleted from the editor

 

Unless you can't edit now as after X minutes it seems to disappear

 

[leonardratso]

20 minutes ago, Bricormortis said:

Was going to post about Turkish crypto exchange owner has done a bunk with maybe $2 billion of other peoples money.

have you checked for any new barber shops opening with gold plated chairs and hair cutting paraphernalia, or a kebab shop that delivers in a maserati.

[Bricormortis]

5 minutes ago, DoINeedOne said:

Click  the 3 ... in top right of your post > edit then click the delete icon on the image at the bottom where its been uploaded Not just deleted from the editor

 

Unless you can't edit now as after X minutes it seems to disappear

 

Does not seem to be a delete option showing. Oh yes, see it. sorted thanks.

[Bricormortis]

https://www.bloomberg.com/news/articles/2021-04-22/turks-suspect-massive-crypto-losses-as-exchange-ceo-goes-missing

Link to Turkish  Crypto Exchange CEO doing a runner.

[Barnsey]

Good God 

 

[Alex]

18 hours ago, AWW said:

Shittiness is in the eye of the beholder.

I grew up "somewhere shit", but I find myself missing the place nowadays. Normal, grounded people who judge you on what you're like, not which school you managed to get your kids into or which cafe you buy your coffee at.

True. Shitty town in the midlands for me. Couldn't get out of there fast enough, reached escape velocity aged 17.

But... it was certainly the most grounded place I've lived. Full of aggressive, violent bellends but there were also a lot of solid, dependable, decent people there. I wouldn't go back (it's changed, everyone I knew has moved on) but I find myself surprisingly nostalgic about that era of my life.

(Not that I've contributed much to this thread except for reps and silently nodding in agreement with some of the less technical posts, but it has helped inform my own investment decisions and I'm grateful for that.)

[MrXxxx]

Macrovoices special on oil this week [https://macrovoices.podbean.com/e/macrovoices-268-art-berman-crude-oil-update/]

[stoobs]

Interactive Investor scrapping trading fees on US shares next week Mon-Fri.

[Cosmic]

27 minutes ago, stoobs said:

Interactive Investor scrapping trading fees on US shares next week Mon-Fri.

Ensuring they sucker punters in to the mania phase?